Skewed Britain is no country for young men

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Against all expectations, George Osborne managed to deliver something of a giveaway with his combined Autumn Statement and Spending Review. That might seem hard to believe given that day-to-day UK government spending is set to be reduced by more than £10bn over the next four years. For many departments that means cumulative budget cuts since 2009-10 of between one-half and three-quarters.

The overall direction of the Autumn Statement has been to skew the purpose of the state ever further towards older people

Yet that is still an £8bn smaller reduction than anticipated. And the headline reversal of the tax credit cuts announced at the summer Budget removes the overnight losses of over £1,000 that had been set to hit 3.3m working families from next April. Add in the extra money diverted towards housebuilding and other capital projects and this starts to look like a particularly good statement for those working-age households who had expected to be hardest hit by another four years of austerity.

Yet in truth, the overall direction of the statement — as with all of those delivered by the chancellor, since 2010 — is to skew the purpose of the state ever further towards older people.

The fact that the state has been shrinking over the past six years is hardly news. Total government spending amounted to close to 46 per cent of gross domestic product in 2009-10; today it is below 40 per cent. Once Mr Osborne has completed his near-decade of fiscal consolidation, it is set to be 36.5 per cent. The state has only ever been smaller as a share of national output in three years since comparable records began in 1948.

Less obvious is the way in which the shape of the state has changed since 2009. Protections for health, schools, aid and — now — defence, means that roughly £55bn of cuts is being concentrated on a relatively small residual. As a result, health spending is accounting for a rapidly growing share of all government expenditure. Having consumed 28 per cent of departmental spending in 2010, by 2019 it will account for 34 per cent.

There is a similar story on welfare. Pensioner benefits made up 45 per cent of the total budget in the mid-2000s; by the end of the decade we expect them to comprise 51 per cent. Protections such as the triple lock mean that benefit payments per pensioner will also rise. At the same time welfare payments per person will fall among working-age adults and children.

On the chancellor’s eye-catching tax credit reversal it is worth noting that the chancellor did not reverse equivalent cuts made to universal credit in the summer. So, while tax credit recipients will no longer face big overnight losses in April, they will still be made worse-off as they gradually move to unievrsal credit. By the end of the decade, we are still looking at around 3m families losing around £1,000 relative to their position before the summer Budget.

Add all that up and we find that the current period of fiscal consolidation is producing a state that is not just smaller, but greyer too. Pre-crisis, 35 per cent of all government spending was directed either towards older people or to health (of which older people are the biggest consumers). By 2020 it is set to top 42 per cent. In direct contrast, spending on education and economic affairs (areas which we might consider most likely to support future economic growth) is falling from 24 per cent to a new low of 20 per cent.

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Today’s most eye-catching announcements might provide some boost for younger cohorts. But look deeper and it’s clear that the Autumn Statement and Spending Review mark yet another step in a profound shift in British government. It may not quite be no country for young men just yet, but the terrain is certainly rougher than it used to be.

This post originally appeared in the Financial Times.