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Britain’s Hidden Hunger Puts Spotlight on Cameron Budget Cuts

July 04, 2012

Britain’s Hidden Hunger Puts Spotlight on Cameron Budget Cuts

A foodbank volunteer sorts out donations of food at the foodbank centre's warehouse in Salisbury. Photographer: Matt Cardy/Getty Images

When the British economy fell back into a recession at the end of last year, Ryan Hall, 24, lost his job, his home and the means to feed his family.

His employer, a retail company, first reduced his hours and then eliminated his job altogether. No longer able to pay the rent, he was forced to seek emergency shelter at the home of a friend. He relied on food charities to help feed his wife and four-year-old son.

“We had nowhere to go, no money, things were really, really hard,” said the resident of Bradford in northern England. “I was looking for jobs, but there was nothing out there. We were barely surviving.”

The plight of Hall and tens of thousands of other Britons living on the breadline is fueling the debate over Prime Minister David Cameron’s unprecedented austerity program as the economy struggles to emerge from its second recession since 2009. His Conservative-led government plans to all but erase Britain’s budget deficit by 2017 with spending cuts and tax increases that exceed those planned by former Labour Chancellor of the Exchequer Alistair Darling by more than 50 percent.

Cameron’s assertion that Europe’s sovereign debt crisis is largely to blame for the economic malaise has been called into question after the U.K. contracted for a second straight quarter between January and March, while the euro region escaped recession. The Labour opposition, led by Ed Miliband, says the government now must spur the economy by scaling back its deficit-cutting program and spending more.

The squeeze on households from unemployment, rising food prices and welfare reductions has led to a “massive increase” in families struggling to cope, according to Chris Mould, executive chairman of the Trussell Trust, which runs 220 food banks across the U.K.

‘Hidden Hunger’

Virtually unheard of during the decade-long economic boom that ended in 2007, food banks are opening at the rate of two a week. Mould said the number of people receiving emergency grocery parcels doubled to almost 130,000 in the 12 months ended in April -- about 33 percent of them as a result of benefit reassessments -- and the figure may reach 500,000 by 2016. Those referred for food aid, usually by doctors or social workers, are typically not destitute, rather people on low wages or on welfare.

“There is a lot of hidden hunger in Britain,” Mould said. “These are people who are working and trying their best to make ends meet. They are often working a concoction of part-time jobs, with zero-duration contracts. Their benefit support is being reduced and that will get significantly worse.”

Deficit-Cutting Plans

A debate over the pace at which the deficit should be cut has raged since the Conservative-led government took office in the aftermath of the global financial crisis. The shortfall is more than 8 percent of gross domestic product, after reaching 11 percent, the highest in British peacetime history, before the 2010 election.

Cameron and Chancellor of the Exchequer George Osborne have staked their reputations on eliminating the bulk of the deficit with 126 billion pounds ($196 billion) of spending cuts and 29 billion pounds of tax increases. They say their plan is supporting the economy by satisfying credit-rating companies and holding down borrowing costs at a time when debt-burdened European governments such as Spain are paying near-record rates.

“We are pursuing fiscal consolidation at a pace that is right for the British economy, which is why interest rates are as low as they are,” Cameron told Parliament on June 25.

Job Cuts

Recent data have given ammunition to those who oppose the pace of austerity, which will see more than 700,000 public- sector jobs axed and at least 18 billion pounds squeezed from welfare spending in the deepest budget cuts since World War II. Labour had pledged to cut the deficit to 4 percent of GDP by 2015, based on plans drawn up by Darling and then Prime Minister Gordon Brown.

While Germany helped the euro region avoid another economic contraction in the first quarter, output in the U.K. shrank 0.3 percent following a 0.4 percent drop in the three previous months. The government may find it hard to resist pressure for a fiscal stimulus if the crisis in Europe worsens, said Neil MacKinnon, global macro strategist at VTB Capital in London and a former U.K. Treasury official.

“The economic situation is getting worse rather than better and the government may no longer have the luxury of having a choice,” he said. “An escalation in the crisis, which seems imminent, should concentrate the minds of policy makers and warrant short-term policy measures which should include tax cuts.”

Continental Effect

Even with a fiscal stimulus equal to 1 percent of GDP, a 4 percent economic contraction in the euro region -- the biggest market for British goods -- would see the U.K. economy shrink by about 2 percent, Bank of America Corp. economist Nick Bate wrote in a May 24 report to clients.

“The most important thing is what happens in Europe,” said Stewart Robertson, chief European economist at Aviva Investors in London, which manages more than $410 billion. “Whether we nibble away at our deficit is secondary.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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