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After the 2008 Financial Crash. The Early 2010s

Background: The Period in Perspective

The politics of the final fiscal squeeze episode we identified in Chapter Two— under a Conservative-Liberal Democrat coalition, though partially planned by the preceding Labour Government and continued for a time under the subsequent Conservative Government—differs from earlier episodes in several ways. First, although there is already a large literature on the austerity politics of this period and the financial crisis associated with it (for example Kickert and Randma-Liiv 2015; Gamble 2012), there is no archival material yet available for this period and only a few memoirs by the leading participants. So this chapter is based largely on media sources and official publications. Second, this episode was not definitely concluded at the time of writing, so the account given here covers only five years of a squeeze that was planned to extend over a longer period, though specific deficit-reduction plans were suspended in 2016. Third, this episode is too recent for any firm assessment of its long-term consequences.

Compared with the earlier episodes, this squeeze resembles 1931 in that it followed an international financial crisis of once-in-a-generation severity that plunged the UK and many other countries into their deepest recession since the 1930s. It also resembles 1931 in that it features a government taking office expressly to correct the public finances. But it resembles the early 1920s episode in some ways too, in that: it took place under a Conservative-Liberal (Democrat) coalition; fiscal squeeze (specifically, cutting spending) was, for some time at least, seen across much of the political spectrum as the only way to respond to the economic challenges of the day; outline plans for fiscal squeeze drawn up by one government were pursued (albeit in a modified form) by its successor; and the general election following the squeeze produced an outright if narrow victory for the Conservatives, with their coalition partners, the Liberal Democrats, reduced to a handful of MPs.

In other ways, though, this episode resembles those of the 1980s and 1990s in that a tax-raising budget that was attacked by the government's opponents as exacerbating recession was followed by an economic recovery in which revenues eventually began to rise in constant-price terms but not relative to growing GDP, while government spending fell relative to GDP but not in constant-price terms. It also resembles the 1970s in that, in contrast to the 1980s and 1990s, revenue from oil production taxes dropped heavily ('fell off a cliff', as one of our interviewees put it). And while, as with the 1980s and 1990s, asset sales played a part in the squeeze, that part was smaller than in those earlier episodes, with less 'low-hanging fruit' in the form of readily saleable public assets available by that time. About ?2bn was realized in asset sales between 2010 and 2015, massively outweighed by huge asset purchases in the form of bank stocks bought by government during the financial crisis. So this episode was not simply a replay of any of the previous episodes we have discussed and at the least it represents a new combination of their features.

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