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  • Every developed nation that cut public spending since the financial crisis has experienced slower GDP growth
  • Wage growth has halved across OECD nations since the financial crisis
  • Shadow Chancellor John McDonnell to speak at launch of report at TUC Congress House

Every developed nation that cut government spending since the financial crisis has experienced slower GDP growth, according to a new TUC report published today (Thursday).

The report looks at the impact of austerity across the OECD. It finds that the rate of GDP growth reduced in all 32 countries where government spending was cut (figure 12, page 23).

The only OECD countries with higher GDP growth are Germany and Japan, which both increased government spending after the crash.

Living standards

The report also reveals the devastating impact of austerity on living standards.

Wage growth has halved across OECD nations since the crash (figure 3, page 13), with annual real pay growth averaging less than 1% for two-thirds of countries (Annex, page 48).

UK workers have been among the worst affected. Only Lithuania, Estonia, Greece and Latvia have experienced a greater reduction in real wage growth than Britain since the financial crisis (Annex, page 48).

Over this period the number of people in working households living in poverty in Britain has increased from 5 million to 8 million (HBAI, Office for National Statistics).

The Shadow Chancellor of the Exchequer John McDonnell will speak at the report launch today (Thursday) at 10am at Congress House – see notes for information on attending.

Commenting on the report, TUC General Secretary Frances O’Grady said: 

“Austerity was always a political choice. It’s now clear how much harm it caused, holding down economic growth and living standards.

“We can’t afford to make the same mistake again. If there’s another crisis, the government’s response must be to focus on public investment to make our economy stronger.

“But we shouldn’t wait for the worst to happen. The best way to deal with a recession is to prevent it. There are already warning signs, so the government should act now by boosting public sector pay and spending on public services.”

Recommendations from the report:

  • An independent review of how the Office for Budget Responsibility and Bank of England judge the impact of government spending on the economy.
  • Urgent fiscal support for aggregate demand through public sector pay increases and spending on services.
  • Fast-track increases to UK public infrastructure spending to least the OECD average of 3.5% GDP.
  • Increased expenditure should initially be financed by borrowing rather than increased taxation. This will strengthen the economy, leading to higher revenues that can support spending increases longer term.
  • Fiscal policy should be part of a wider plan to deliver sustainable growth across the UK, including investment in the public services families rely on, the skills workers need for the future, a just transition to net zero carbon emissions, and giving workers a real voice at work.
Editors note

- Report launch event: The report will be launched at an event at Congress House at 10am today.

It will be chaired by Martin Sandbu from the Financial Times. Speakers are:

  • John McDonnell, Shadow Chancellor of the Exchequer
  • Frances O’Grady, General Secretary of the TUC
  • Geoff Tily, TUC chief economist
  • Carys Roberts, IPPR chief economist

- Impact of spending cuts: Analysis published by the TUC in August found that a decade of cuts has hit low income households the hardest and is widening the class gap:

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