Jobs, Welfare and Austerity : how the destruction of industrial Britain casts a shadow over the present-day public finances

In this short paper we aim to explain how the loss of Britain’s industrial base sets the context for present-day public finances. In doing so, we draw in particular on our own research at CRESR over the last three decades. Individual components of this research provide pieces of the jigsaw, but by combining all the pieces and drawing on wider ideas in economics to fill in some of the gaps the overall picture becomes clear. In brief, our argument is that the destruction of industrial jobs, which was so marked in the 1980s and early 90s but has continued on and off ever since, fuelled spending on welfare benefits which in turn has compounded the budgetary problems of successive governments. And with the present government set on welfare reform, the places that bore the brunt of job destruction some years ago are now generally facing the biggest reductions in household incomes. There is a continuous thread linking what happened to British industry in the 1980s, via the Treasury’s budgetary calculations, to what is today happening on the ground in so many hard-pressed communities. In particular, we demonstrate these links by deploying local data. This has been the distinctive contribution of our research (and of CRESR more generally) and its value is that it provides not just a level of detail that would otherwise be missing but, more importantly, it sheds light on the underlying processes at work. The Treasury knows it has a problem balancing public finances, and that the government spends an awful lot on working-age welfare benefits. But it never seems to ask exactly where – which towns and cities – draw so heavily on benefits, or why these communities have become so dependent on welfare spending.