MarketLine Blog

Hit hard by austerity measures

The rate of unemployment is closely watched by the government as an important measure of success or failure of economic policies. According to the Office of National Statistics (ONS), unemployment in the United Kingdom declined from a peak of 2.65m in December 2011 to 1.84m in February 2015. Close to 800,000 workers found a job between December 2011 and February 2015. Additionally, according to BBC news, ONS also claims that “the employment rate now stands at 73.3%, the highest rate of people in work since the ONS began keeping records in 1971.”

A prominent effect of an expansionary economy with high employment rates should be the sheer increase in government revenues coming from income tax. However, according to the ONS, the value of income tax receipts only marginally increased from 2011 onwards, even with an extra 800,000 workers potentially contributing via income tax payment. Surprisingly, the value on income tax receipts in 2014 remained close to 2009 value at £50bn.

Revenues from taxes on products and production bounced back to reach a record value of £56bn in the second quarter of 2014. The movement partially reflects an increase in the rate of Value Added Tax (VAT) from 15.0% to 20.0% in 2011.


A more detailed version of the same story reveals the reason why income tax receipts have not increased in tandem with falling rates of unemployment from 2011 onwards. According to Eurostat, the under-employment rate as share of total employment in Britain is one of the largest in the European Union (EU) at 5.9%. Only France, Ireland, Greece and Spain have higher rates of under-employment than the United Kingdom. This rate measures the number of part-time workers, consequently employed, looking for more work. They are technically employed, probably earning below the income tax threshold, in many cases claiming in-work benefits due to low earnings but unable to increase their number of working hours.

Controversially, during the course of the last parliament, the employment rate reached its highest historical level since records began as the austerity measures imposed by the government deepened. However, the true story of the austerity measures adopted is hidden away from mainstream analysis, revealing a different reality. Income tax receipts remained subdued at 2009 levels as the numbers of under-employed workers possibly claiming in work-benefits and probably earning below the income tax threshold increased at a fast pace.

We shouldn’t be under the illusion that austerity measures adopted by the last government are delivering positive outcomes or optimistic economic results. Austerity has been hitting the economy hard generating high rates of underemployment and low performance of income tax receipts.


Leave a comment

*Required fields. We will not publish your email address