Summary

• This briefing examines two common explanations for the UK’s poor economic performance over the last fifteen years: austerity and Brexit.


• Though critics of austerity often frame it in terms of ‘savage cuts’, the austerity programme of the Coalition and Conservative governments of the 2010s saw public spending remain roughly flat in real terms. Public spending as a share of GDP fell gradually from 45.5 per cent in 2010/11 to a pre-Covid low of 39.1 per cent in 2019/20.


• There are some sound critiques of austerity as implemented. Spending cuts in the early 2010s fell more heavily on capital expenditure than on day-to-day spending. Public sector net investment was roughly halved, from a peak of £75.2bn in 2008/09 (in 2025/26 prices) to a low of £37.3bn in 2013/14. That said, public investment remained a larger proportion of GDP than in the 1980s, 1990s and 2000s. Austerity does not seem to have harmed productivity in the public sector, which over the course of the 2010s saw relatively rapid growth.


• Furthermore, it is highly unlikely that the UK government could have continued to borrow at favourable rates without a plan for fiscal constraints. There is little reason to believe that any additional public money would have been spent wisely or could have significantly boosted productivity growth.


• The vote to leave the EU in 2016 and the protracted Brexit negotiations that followed undoubtedly ushered in a period of political instability and economic uncertainty which may have slowed growth in the short term. However, estimates of sustained losses of 4–8 per cent of GDP are likely to be exaggerated.


• When compared to other large European economies, the UK’s real GDP per capita growth since 2016 has been towards the middle of the pack: slower than France and Italy but faster than Germany. The UK has underperformed in trade in goods, but outperformed expectations in trade in services, while investment has begun to catch up after a period of post-Brexit uncertainty.


• There is little hard evidence that either austerity or Brexit can explain Britain’s weak economic performance in the post-2008 period. The reality is that the impact of neither shock was as large as is often assumed.