The prime minister's speech at the lord mayor's banquet was notable in part because its main message, that "we need to do more with less. Not just now, but permanently," was delivered from a throne bedecked in gold
to applause from members of the financial elite. But it's the other
less commented upon aspects of the speech that signal why the government
feels confident enough to reveal its true colours.
David Cameron's claims simply don't add up to a coherent explanation
as to why "more with less" – perma-austerity – is a policy worth
First of all, he insisted that "the biggest single threat to the cost
of living in this country is if our budget deficit and debts get out of
control again". Yet while the deficit rose to 11.2% of GDP in 2010, the
markets that fund British debt never once thought the situation "out of
control". Quite the contrary occurred as the interest payments due on
UK bonds have gone steadily down since 2006, and have only risen now,
when the UK is supposedly in recovery. A much more likely culprit for
the drop in living standards is the fall in British real wages of over
5% since 2010 coupled with high price inflation, but that doesn't fit
with the story of "out of control" spending needing to be reined in for
the common good.
Second, when you have a deficit, you can either raise taxes or cut
spending to fill the gap, and the coalition have favoured the latter.
And because of these efforts British government debt has gone up, not
down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. This
is hardly a surprise given that exactly this same pattern of cuts
leading to more debt as the underlying economy shrinks has been the
story throughout the Eurozone too.