A LEADING academic yesterday backed Nicola Sturgeon’s position on the damaging economic impact of austerity. Simon Wren-Lewis, a professor of economics and fellow of Merton College at Oxford University, supported the view that austerity has held back economic growth.

As a result, he argued: “The main impact of lower growth – including that caused by fiscal austerity – has been on living standards.”

Writing on The Conversation website, Wren-Lewis said: “The key point here is that because short-term interest rates had fallen as far as the Monetary Policy Committee of the Bank of England thought they could go (0.5 per cent), monetary policy was not able to offset the impact of fiscal contraction – cuts to government spending, or austerity.

“Instead, monetary policy had to resort to quantitative easing: creating money to buy long-term assets in order to put downward pressure on long-term interest rates. Quantitative easing probably had some effect on the growth rate, but almost certainly not enough to counter the impact of fiscal austerity.”

He added that lower growth caused by fiscal austerity would normally mean higher unemployment or lower living standards.

“An unusual feature of the past five years is how quickly unemployment has fallen, even though GDP growth has not been strong,” Wren-Lewis said.

“As a result, the main impact of lower growth – including that caused by fiscal austerity – has been on living standards.

“Fiscal austerity has involved reduced public spending in many areas, including welfare payments. The general consensus among economists such as those at the Institute for Fiscal Studies is that fiscal consolidation has hit two groups more than most: the rich and the poor.

“It is therefore reasonable to say austerity in itself has increased child poverty. As living standards have fallen generally, then relative levels of poverty in general – which measure the poverty gap – have not increased over the last few years, although absolute levels of poverty have.”

Wren-Lewis said Sturgeon had focused on the impact of fiscal austerity, and added: “The assertion that fiscal austerity has ‘undermined our public services’ comes close to being a tautology. To suggest otherwise you would have to argue that spending less on public services has only increased the efficiency with which they were delivered.

“Nicola Sturgeon’s statement on the economic impact of austerity on the UK is correct, with no qualifications.”

SNP deputy leader and Treasury spokesman Stewart Hosie welcomed the academic’s remarks. He said: ‘’Professor Wren-Lewis reflects what many other experts and indeed members of the public know all too well – that Tory/LibDem austerity has done deep harm to the country’s recovery from the Labour recession.

“It is particularly welcome to receive this endorsement from someone as eminent as Professor Wren-Lewis. He argues that Westminster austerity and George Osborne’s policy of cuts, cuts and yet more cuts has been damaging to the economy as well as hard-working and vulnerable people – and, of course, Labour, Tories and LibDems are still wedded to yet more cuts after the election.

“Professor Wren-Lewis confirms that falling living standards and absolute levels of poverty have increased in the last five years.

“The SNP have made it clear that our first priority in this election is ending the cuts.

“This General Election is Scotland’s opportunity to elect a team of SNP MPs to put an end to the austerity cuts which are putting huge pressure on families, communities and public services across Scotland and the rest of the UK.’’

Meanwhile, an economist has warned MSPs that if Westminster raised income tax to pay for a reserved matter, such as replacing Trident, under Smith Commission proposals the Scottish Government would also have to raise income tax or make cuts in public spending.

In evidence to Holyrood’s finance committee yesterday, consultant Jim Cuthbert said that given the current methodology, public spending in Scotland would go up and there would have to be a reduction of a similar amount in the block grant.

He said the Scottish Government could respond “by cutting devolved services here or increasing income tax”.

“That seems to be an unacceptable position and one that runs quite counter to what one might regard as the principle of Smith that we would be in charge of our own income tax,” said Cuthbert.

“In a sense there would be a mechanism here whereby decisions made by the rest of the UK Government yank the chain of the Scottish Government and force it to react either by increasing tax or cutting devolved services.

“This appears to be an unacceptable mechanism in terms of what the Scottish people thought they were getting out the Smith reforms.” https://theconversation.com/fact-check-has-austerity-held-back-economic-growth-40578