Duncan’s Economic Blog

This is what real austerity looks like

Posted in Uncategorized by duncanseconomicblog on June 15, 2009

As we debate 7% spending cuts versus 10% spending cuts, spare a thought for Latvia.

Latvia is firing a third of its teachers. The welfare state is being dismantled. Pensions for those in work will be cut 70pc. The salaries of doctors, nurses, and police (nota bene) will be cut 20pc. Unemployment has risen from 6pc to 17pc in a year, and is still rising. Jobless benefits for most will run out in the autumn, reducing support to £40 a month.

The currency is currently pegged to the Euro ahead of possible entry.

FT Alphaville have a great summary up, explaining exactly what is going on.


7 Responses

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  1. charliemarks said, on June 15, 2009 at 10:15 pm

    The flat tax is on the way out, mind…

  2. newmania said, on June 16, 2009 at 9:12 am

    I`m not sure how austere this is going to feel anyway. In historical terms we will see an unprecedented cut in spending but then spending is at historically astronomical levels . Teachers are paid fabulously well and applications are swollen ,the same goes for the Police . The theory was that they had to keep pace with private sector wages ,which they doubled ,but that need not apply any more .We are worlds away from a shortage of these sinecure holders . ID Cards , regional development rubbish and Trident ( which only Brown now think is required ) , they can go . Over seas aid must be cut to zero and if we stopped a New Borough of immigrants turning up in London every year the savings in social costs would be enormous .
    Many of the 2 mio with achey backs and sad feeling can go back to work and in general a reduction of needs tested befits will only reduce the incentive to adopt needy life styles . Few deserving cases would be harmed .With the poverty trap moved further down the income scale the need for tax credits disappears .( Surely the most ridiculous and poorly implemented Policy ever anyway )
    What is not happening is what has been happening for the last ten years which is everyone working for a living gets stuffed . Never got the Party; not taking the hangover .

    I am looking for ward to the strike of the Council workers and teachers so their deals are all over the papers . They are not going to know what hit them when the public sees what they have been up to.

    • duncanseconomicblog said, on June 16, 2009 at 10:47 am


      It’s quite simple – if we cut teachers, then class sizes increase. people tend to notice that and standards drop.

      As I keep saying – yes we can ditch Trident, ID cards, etc but that does nothing about the current deficit.

      You are quite right that some people on IB can, and should, be in work.

      • donpaskini said, on June 16, 2009 at 1:57 pm

        “You are quite right that some people on IB can, and should, be in work.”

        True enough, but where are these jobs that they could and should be doing?

        One of the things which was most inept about James Purnell’s unlamented time as DWP minister is that he spent his time and energy on implementing a set of welfare reforms designed by David Freud which assumed that the supply of jobs would continue to expand indefinitely. The fact that there is a political consensus stretching from Jon Cruddas to newmania in support of these reforms shows how far we still have to go to get proper welfare reforms which would actually get more people into work.

        • duncanseconomicblog said, on June 16, 2009 at 2:21 pm


          I hold two views here. (i) There are people on IB who probably shouldn’t be. That’s not contentious. (ii) The Freud reforms, as proposed, are not a good idea. Not that contentious either.

          Now, in a recession, is not the time to drive people off IB. But when the economy does pick up, some people will have to seek work.

  3. newmania said, on June 16, 2009 at 11:45 am


    It’s quite simple – if we cut teachers, then class sizes increase. people tend to notice that and standards drop.

    There is no correlation whatsoever between class sizes and attainment and there is even less between money squandered and standards achieved . Some have actually dropped in absolute terms while £90 billion has been wasted ,and in general we have slithered down the league tables .
    Payments to Regional Development Agencies are a significant pointless drain and should be dropped as should international aid by which we subsidise India`s Space programme . A Freeze on Public sector salaries and recruitment and let inflation do the heavy lifting would be my suggestion.. To be honest if every single councils could not lose 1 in 10 bods and not notice I would be amazed . In the longer terms the Public sector Pension swindle has to be tackled.
    Forget taxes , well forget them if you have any interest in social justice , they will be indirect and levied in effect at the very people who cannot afford or avoid them. At this points cuts to spending are a moral as well as necessary step.
    Getting people back into work is along term goal but the resources required are expensive as we have seen in the US. This deeply desirable state of affairs will sadly have to be put on hold , my enthusiasm got the better of me .
    The NHS can make vast efficiency savings above the budgeted £17billion which they are happily boasting about but I still feel it is the one area where we get value and security we need and should be last for the chop

    I see a division is opening up between the Brownite Balls and Mandy about this cuts v investment paradigm ( =bollocks ). Mandy rightly senses that bragging about spending is warning about taxes and we are not in a high tax era. If you were , as you say , a Blairite you ought to be siding with me against the Brownian fibs and silly promises and talking about what cuts when. Your idea it could be done with tax increases ,you will notice, is not taken seriously by anyone .

  4. Pēteris Cedriņš said, on June 16, 2009 at 11:55 am

    If you mean that the flat tax is on its way out in Latvia — no, unfortunately it is not. The idea of a progressive income tax was ditched after a couple of promising days and completely removed from the agenda. The flat tax is a religion, like the eternal strength of the lat.

    When trying to figure out just how horrible the cuts are, you have to realize how low pensions and salaries for teachers, the police, and medical professionals are. Many pensioners were already barely eking out an existence below the subsistence level. The minimum wage is being lowered from 180 to 140 LVL a month (140 LVL = 168 GBP)… and the amount that isn’t taxed is being lowered.

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