Is austerity really coming to an end?


Last month’s budget saw the U.K.’s Chancellor of the Exchequer announcing a budget with some good news. There were tax cuts for most people, and more than a few businesses saw a cut in their business rates.

But perhaps the most exciting part of all was his statement that austerity is very nearly over.

“I can report to the British people that their hard work is paying off and the era of austerity is finally coming to an end.”

Philip Hammond

But what might this mean for you and your investments?

What exactly is austerity?

Austerity is essentially a public spending squeeze – a cut back on services funded by central and local government.

It was a response to the recession. Ten years ago, the public spending deficit was soaring, and the fear of a complete financial meltdown such as that which had befallen Greece was very real.

The coalition government led by the Conservatives with the Liberal Democrats as the junior partners imposed severe cutbacks on public services and on welfare benefits. Cutbacks continued after the Conservatives won an outright majority in the 2015 election.

Cuts affected schools, the police, the NHS, council housing, and anyone on benefits. It also caused problems for many businesses which provided goods and services to government and local government customers.

Now, it looks as though the country has had enough. Many saw the loss of the Conservative majority in the 2017 election as a reaction to austerity. In particular, the manifesto proposal to deal with the crisis in adult social care by making those who need long-term care pay for it by selling their homes was a major vote loser.

What did the Chancellor do?

In the Budget, Mr Hammond announced an extra £20.5bn for the NHS and an additional extra £2bn a year for mental health services, together with £10m for running and providing air ambulances.

New spending was also promised with an extra £700m for councils to help provide care for the elderly and those with disabilities, and a one-off £400m payment for schools. There was also 30% extra spending for infrastructure, to include a £30bn package for England’s roads, including repairs to motorways and potholes.

Much of the increased costs will be provided by revenue from an economy which is performing better than many expected. It looks as though the reasons behind austerity may no longer be as pressing as they once were – or in other words that the country can afford it.

So – if austerity is over, what does it mean to you?

A cynic might suggest that austerity is not over, and that there is plenty of ground that needs to be made up to get back to a reasonable level of public services. They might even suggest that the claim is simply a way to build support for the government, with Brexit and a 2019 election to prepare for.

However, if austerity really is coming to an end, there could be new opportunities for the sectors that have suffered. Extra spending on provision for the elderly and the disabled, and substantial extra funding for NHS hospitals might boost companies supplying the care sector. New infrastructure and homes may mean much more work for construction companies.

You might want to look at your portfolio, and see if there is any scope to invest in a possible growth of these businesses if the government is starting to spend again. At Continuum, we would be happy to look with you.

The value of investments can fall as well as rise and you may get back less than you invested.

Book a free initial consultation

Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.

Sources:

thespectator.co.uk – Why austerity is coming to an end – 28th July 2018

forbes.com – Is Austerity Really Coming To An End In The U.K.? – 31st October 2018

bbc.com – May’s end of austerity claim ‘not credible’, says Labour – 4th October 2018

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