1. Austerity: A century of fiscal squeeze politics
Rozana Himaz
Oxford Brookes University
Christopher Hood
Blavatnik School of Government, Oxford
Birbeck LGPC seminar series, 25 May 2018

2. 1. Motivation
2. Defining ‘fiscal squeeze’ and our conceptual framework
3. Key patterns in 100 years of ‘fiscal squeezes’ in the UK
4. Going beyond the book…

3. 1. Motivation
‘Austerity’ a key issue in the practice and analysis of economics and political science since the 2008 crisis
- But is rarely defined precisely and means different things to different people

4. Key contributions
- How does the recent coalition squeeze episode look in the context of every fiscal squeeze over the past century in the UK? (was it really like the 1930s?)
- Tax versus spending choices, ‘short and sharp’ versus ‘gradual’, handling of blame
- Consequences

5. 2.‘Fiscal Squeeze’
We define ‘fiscal squeeze’ as a type of ‘austerity’ policy that takes the form of substantial effort by governments to impose absolute or relative losses on at least some people by increasing revenue, restraining spending or a mixture of the two.
Not the same as achievement of lower budget deficit.
The politics of fiscal squeeze centres on how such loss-imposition works, how losses and benefits play out, and how political blame/credit is allocated.

6. A study of 100 years of ‘squeeze’ episodes in the UK from 1900 to 2015
Looked at squeeze episodes from reported financial data, using a typology of squeezes taken from our 2014 comparative book, then categorized them for political ‘effort’ using more qualitative information
We identified 19 squeeze episodes using this method, but fiscal squeezes are not the same as ‘consolidation’ episodes

7. How we identified ‘fiscal squeezes’ from reported financial outcomes
Revenue
Spending
No fall
Fall only in real terms
Fall only as % of GDP
Fall as % of GDP & real
No rise
1 No squeeze
2 Single soft (spending)
3 Single soft (spending)
4 Single hard (spending)
Rise only in real terms
5 Single soft (revenue)
6 Double soft
7 Double soft
8 Hybrid soft/hard
Rise only as % of GDP
9 Single soft (revenue)
10 Double soft  
11 Double soft  
12 Hybrid soft /hard
Rise as % of GDP & real
13 Single hard (revenue)  
14 Hybrid soft /hard
15 Hybrid soft /hard
16 Double hard

8. Fiscal Squeeze and Political Effort: Indicative Examples of the Effort Spectrum
Expected Political Cost or Effort Level
Fairly Low
(Mainly inertia strategies)
Medium
(Imposition of less visible and salient losses)
Fairly High
(Imposition of visible and salient losses)
Fiscal Mode
Taxation
Resist pressure for tax cuts
Accept tax rises or new taxes already in the pipeline
Impose ‘stealth taxes’ (e.g. use fiscal drag or charges not formally counted as ‘taxes,’ such as parking fines)
Impose taxes or tax rises that do not hit key voters, funders or supporters
Impose visible tax rises or new taxes on key voters or funders
Break key election promises over taxes
Spending
Resist pressure for spending increases
Take advantage of spending programmes already scheduled to end
‘Stealth cuts’ (e.g. non-indexing benefits, increases in qualifying periods)
Cuts spending of low salience to key voters, funders or supporters (e.g. benefits to non-voters abroad or spending cuts targeted at opposition heartland areas)
Impose visible cuts in spending of high salience to key voters or funders
Break key election promises over spending
Here is a qualitative coding scheme for assessing degree of political effort in tax raising or expenditure cutting
But inevitably there are going to be some ambiguities over coding

9. Even identifying austerity in a ‘fiscal’ sense depends on such issues as
- Whether we focus on deficit reduction or fiscal squeeze
Whether we focus on announcement or enactment
Whether we use contemporary or retrospective data
What if any threshold of significance we take
Whether we focus on disappointed expectations (e.g. reductions in planned growth) or on changes relative to previous year’s outturns
Whether we focus on absolute changes or changes relative to GDP
Whether we focus on spending only or on the combination of spending and revenue

11. UK squeeze episodes over a century defined as significant rises in revenue or falls in spending relative to GDP
UK squeeze episodes over the same period defined as significant reductions in deficit

12. UK Government Spending and Revenue as a Percentage of GDP, 1900-2015

13. 3. Key patterns in 100 years of ‘fiscal squeezes’ in the UK
On our measures, there were fewer ‘hard’ revenue squeezes towards the end of the period than at earlier times
Dogs that didn’t bark in the night: we found no case since World War II of the ‘expert/cross-party committee’ approach to recommending spending cuts, despite the application of that approach to other functions (forecasting, interest rate decisions, statistics)
On our measures we detected a certain tendency for later squeezes to be longer-drawn out and shallower in annual changes than at earlier times (from ‘surgery without anaesthetics’ to ‘boiling frogs’

14. Surgery without Anaesthetics…
Thomas Rowlandson ‘Amputation’ 1793 (Wellcome Images: Creative Commons)

15. Boiling frogs…
James Lee ‘Frog and Saucepan’ 2010, Creative Commons

16. Other findings Consequences - Economic: varied
- Political: The electoral outcomes following a hard squeeze more severe than a soft squeeze

19. Going beyond the book
Converting ‘hard’ ‘soft’ definition into something more measurable in econometric
Some initial results

22. Conclusions
Interdisciplinary perspective helps pick up patterns that were not previously known or recognised
Impact beyond academia and the UK....