Britain suffered a global recession in 2008 and was heavily affected. There was a banking crisis and financial instability throughout the whole of Britain. This left millions on 'shaky ground.' When the coalition government took over from the labour party in 2010 the new P\rime Minister David Cameron appointed George Osbourne as the chancellor of the Exchequer. Osbourne's solution to the spiralling nationwide debt and chaos in the banks was to impose measures of austerity which still linger today. This solution was praised by some and criticised by many.
Why austerity was necessary
Austerity was viewed as necessary for many reasons. One reason being a high debt and low economic growth; Carmen Reinhart and Kenneth Rogoff, 2010 "Growth in a time of debt", seemed to suggest that GDP growth significantly falls once government-debt levels exceed 90% of GDP. Another reason was the bond Yields falling because annual borrowing was reduced. It is arguable that if the government hadn’t reduced the growth of public spending, bond yields may not have fallen so sharply and the cost of borrowing would have risen.
Why austerity was unnecessary
The recession saw a rise in private sector savings – and hence willingness to buy government bonds. In this case, government debt wasn’t spending money the economy didn’t have. It is the public sector making use of unused private sector savings. Also, bond yields have fallen sharply since 2010, this indicated a strong demand for buying bonds. The cost of borrowing has been very low. Debt interest payments as a % of GDP have remained low. Significantly, public sector investment was cut to very low levels, damaging investment in public transport and new environmental projects. This has long-term costs for the economy.
How it caused poverty and affected the poor
Following the Austerity policy that was established in 2010 by David Cameron's coalition government, some main components were introduced. One of them was that cuts to the income of the poor and disadvantaged were made. Government policy has purposely reduced incomes and increased taxes for the poorest 10% of families.
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