WELFARE CUTS. Reductions in departmental spending. Job cuts in the public sector. But a boost to spending on the military.

These were the main elements of the Spring Statement delivered by the Chancellor.

Yet government ministers seem dismayed that they are accused of implementing austerity, pointing to rising spending in real terms. In reality, as the Joseph Rowntree Foundation shows, the average family will be £750 a year worse off by 2029, and 400,000 households will be pushed into poverty.

Under the Tories, austerity was characterised by cuts for ordinary people and the services they use, while providing tax cuts and tax breaks for big business and the rich. This time is different. Both the October 2024 Budget and the latest Spring Statement imposed cuts for ordinary people, while the statement also provided a bonanza for arms manufacturers. It is still austerity.

It is necessary to unpick some of the government’s policies to show the real changes being imposed, which stand in contrast to ministerial claims. The most important claims centre on the projected rise in day-to-day or current spending, and claims on the growth of public investment.

In the Spring Budget 2024 introduced by Sunak and Hunt, a string of austerity measures was announced, but only to be implemented after the election for obvious electoral reasons. Labour under Starmer signed up to those Tory cuts as part of its own election campaign. It began to implement them in October. The Spring Statement continues and deepens that process.

That explains why we have seen cuts to welfare for the most vulnerable, cuts to international aid, cuts to the winter fuel allowance, and many more austerity measures. The largest of which, by far, was the decision to implement Hunt’s freeze on income tax bands rather than raise them in line with inflation. This will take tens of billions of pounds out of the pockets of ordinary people over time, who will find chunks of any pay rises eaten up by the Inland Revenue.

By contrast, government ministers claim that there is no austerity because total spending is rising in real terms.

But there are a series of problems with this line of argument. The first is that two elements of government spending that are included by the austerity-deniers have no benefit at all in terms of public services. The first is defence spending, which is rising to 2.5 per cent of GDP.

The second, and even larger item, is the rise in debt interest payments. This was referenced in her Spring Statement by Rachel Reeves. In 2021, the cost of servicing government debt amounted to just 1.2 per cent of GDP but soared to 4.4 per cent of GDP two years later and remains at elevated levels. Both of these items are included in the total for government spending, which ministers and others claim “proves” this is not austerity.

Even when these two items are included, government spending is falling as a proportion of GDP. We know that the economy has effectively been stagnant over a prolonged period. The fact that government spending is not even increasing in line with the snail’s pace of GDP is evidence of how hard the handbrake has been applied to government spending.

There is a further factor that should be taken into account. As the population grows, the requirement for public services grows. This is especially true in areas such as health, where the population is not simply growing but ageing too.

As societies become richer, there is a natural tendency to spend more on areas which are fundamental to people’s wellbeing. Health and education are the most important contributions to wellbeing once the requirements for food, shelter, and clothing have been met.

Ministers who insist their cuts are not austerity are ignoring all of these factors. They are also ignoring the reality of the effect of their own policies. Destitution — the lack of these basics — is already on the rise and will accelerate because of these policies.

Scrutiny is needed for claims about the other key area of government expenditure: government investment. There is now a planned increase in capital expenditure, at least over the next two years. But as the Office for Budget Responsibility (OBR) points out, most of this planned increase in public investment is a by-product of the decision to slash the international aid budget to fund the military budget, which is a much more capital-intensive department.

Even with this artificial uplift, the government plans that its own capital investment will go back down in 2029 to the same levels as in 2026. This is not a long-term plan for growth. It is a short-term plan to boost the arms manufacturers, without any significant beneficial effect.

In the run-up to the Spring Statement, there was a lot of propaganda claiming that military spending would provide a significant boost to the economy and to jobs. Both of these claims are false, and the OBR does not include any wider benefit from it.

Capital investment either replaces or adds to the productive capacity of the economy. It enlarges what we used to call the means of production. So, investing in a factory, a machine tool, or a railway allows new production or faster or more efficient production. The opposite is the case for expenditure on a missile, or a tank, or an assault rifle. This can only be used, if at all, to destroy people or the means of production.

The supplementary argument is that investment in arms manufacturers is “jobs-rich.” Rachel Reeves promises to spread those economic benefits geographically across the country. But it is a false promise. As the OBR says, the military sector is capital-intensive, not labour-intensive.

In fact, detailed economic analysis shows that investment in the defence sector is one of the lowest generators of jobs of all. For example, the health sector generates 2½ times the number of jobs for the same level of investment as the defence sector, while also providing a major public benefit. The result of large increases in military spending is overwhelmingly the production of useless or destructive weaponry.

Behind the spin, the inclusion of debt interest payments as “spending,” and the false claims on the benefits of military spending, it is clear that the Spring Statement is deepening austerity. The poor will be made poorer, vital support will be removed, and the average household will be worse off. There is a drive to rearm, being paid for by disabled people, the poor, and the young. It will leave no-one except arms manufacturers better off.

This is a new monthly column on economics to appear on the last weekend of the month. Keep an eye out for the next one on April 26.