The political parties and much of the populace are united in the belief that tough measures must be taken to control spending – but what is this likely to mean?
Austerity is pretty much the only game in town at the moment politically. In Greece and Italy it has been judged to be necessary to install technocrats from the European Central Bank in government in order to bring spending down. There is no danger of that in Britain, but that is not to say that we will not be feeling the pinch of austerity measures.
Rightly or wrongly, reducing the budget deficit has been set as a major priority. Polls indicate that there is a general consensus that this is necessary, and the problem of overspending is one that it is easy to visualise. In life if you are spending more than you are bringing home in earnings, then you are acting irresponsibly and getting yourself into trouble.
The length of time it will take to reduce the budget deficit to the levels deemed acceptable is likely to be longer than was first thought. It could be as long as a decade. Having that as the economic mood for the next ten years will certainly not be easy, and that is why it makes sense to start preparing for it sooner rather than later.
If you are currently in work then it makes sense right now to save absolutely every penny you can manage. This is not the message of ‘consumer confidence’ that the economy needs, but there are a lot of compelling reasons why it could be in your own self-interest.
There have had to be widespread pay cuts, pay freezes and lay-offs in the public sector. Obviously this affects those households where a public sector employee is a bread winner, those certainly need to be putting away all that they can because it certainly isn’t going to get any easier. It also however has implications for those working in the private sector.
Declining levels of real-terms remunerations combined with redundancies means that there will be lots of former public sector employees entering the jobs market. This is yet another way in which downward pressure will be being put on wages. Very few households are likely to see their levels of disposable income rise over the next few years.
Money being tighter is one reason why it makes sense to save now, but there are also others. Reducing public spending means that everybody is going to have to be much more self-reliant than they have grown used to being in the era of untrammelled spending. What this will mean is yet to be seen, but it is a sure bet that having some funds put aside is going to help. Returns on savings accounts are not the highest that they have ever been, but the value of having cash in reserve (in and of itself) is set to increase.
For the time being at least it seems as though ‘getting worse’ is the new normal. Everyone hopes that there will be a brighter future at some point, but in the meantime preparing for tough times ahead seems likely to be prudent.
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