Happy Christmas (Austerity Is Over)

So this is Christmas. Dark winter nights, cloudy days and biting winds. But despite the weather and in keeping with the season, there’s hope in the air rather than gloom.

The Credit Crunch calamity

When Labour left power, leaving behind that rather facetious but (with hindsight) pointedly correct note, the country was in a mess. Because there really was no money left.

The UK had gone on a spending spree, expanding the health service, benefits, the police, and dramatically growing the number of people going to university. These were all laudable aims. But the difficulty was that after the earthquake of the Credit Crunch, Britain couldn’t afford it.

Lehman was an incredibly disruptive event, leading banks that were previously making huge profits to lurch dramatically into the red. Northern Rock was wiped out. Royal Bank of Scotland just survived, and HBOS had to be rescued by Lloyds. The High Street was suffering and companies such as Comet and Woolworths went to the wall.

As people were spending less money, the profits of the supermarkets were also crunched. The share price of Tesco went into freefall. Fewer people were buying houses, so house prices tumbled and house builders were in the wars.

The stock market tanked, and hard-earned fortunes were hit. Make no mistake, this was a calamity of immense proportions.

With fewer companies making money, with higher unemployment and less consumer spending, the Government’s income dropped. Britain’s outgoings were far greater than our income.

Austerity is now ending

What does any family do when faced with this situation? They economise. And severely. Cue austerity. Since 2010 there have been cuts to services and to benefits, and a massive hike in taxes, with pensions and buy-to-let hit particularly hard. Make no mistake, it has been brutal.

But since 2010 we’ve had an election and we now have an economy, and a country, which is recovering strongly. Perhaps the most astonishing thing about this recovery is how jobs-rich and inflation-poor it has been. There are more jobs, more start-up companies and, with a little luck, the companies will be more profitable too. Which augurs well both for the country’s tax take and for the FTSE 100.

Today, for the first time since the Credit Crunch, it feels more like austerity is over. With falling commodity prices and zero inflation, many people feel wealthier and more secure. Unemployment is falling and employment is at record levels. Inflation is virtually zero, and wages are rising. House prices are still rising too and I see a recovery in stock prices on the horizon.

Importantly, the government is seeing a rise in its income and a fall in its outgoings. In a few years we hope to be in surplus. And I’m hopeful that the stock market of this newly resurgent country will also push ahead next year.

Happy Christmas. Austerity is over, if you want it. 

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Prabhat owns shares in none of the companies mentioned in this article.