What is Austerity?

Austerity.  Can you tell me what that word means?

Let’s think of it from a practical point of view.  At home.

By way of an example, if you earn £100 in a month, how much money do you have available to spend?  £100.  Well, of course you can spend more, but that would involve going into debt, borrowing money from someone else, like a bank.  Or a pay day lender.  Or a credit card company that “allows” you to repay money you have borrowed from them when you bought that item at, say, £150.  So you can spend more than you earn in a single month.

But of course you can’t do that every month.  In this example, assuming you repaid the £50 you had borrowed at £10 a month, you would be debt free in 5 months, excluding interest that may also be payable.

To take it further.  Suppose you spent £150 every month.  That would mean you need to borrow £50 each and every month.  So after a year you have borrowed £600.  Now, you realise this is getting a bit out of hand so you decide that you simply can’t keep accruing that kind of debt and you promise yourself to do something about it.  You decide you want to get out of debt, to pay back the £600 (plus interest due).  Now how can you do that?  Well, only two ways really.  Earn more money.  Find a job that pays £120 a month and if you keep your spending at £100, in 30 months you will have paid off your debt.  But supposing you can’t find a job that pays £20 more a month, there is only one solution.  Spend less, say £80 a month out of the £100 you earn, and put the other £20 towards paying off the debt.  Again, 30 months later you will be debt free.

Yes, it will hurt to spend less.  Maybe you will have to walk more rather than get the bus.  Maybe less processed pre-packed meals and start cooking proper food.   Maybe just stop driving at 70mph and drop to 50mph.  Or maybe it may take even harder decisions.  Every little counts.  All this money saving activity to help you to live within your budget. And pay back your loan.

Know what we call that necessary action?  Austerity. 

This is how Labour left the UK at the last election in 2010. In massive debt and spending more than it could afford.  Who can forget the note the out-going Labour Chief Secretary to the Treasury left to his successor.

So next time a politician tells you austerity is bad, tell them this little example and ask them how they would get the family out of debt.