In order to plug a GBP 22 billion budget gap, the newly elected Labour government in the UK has announced tough decisions, including the scrapping of road and hospital projects and the abandonment of plans to cap social care costs. Since these plans will exacerbate the UK's already declining welfare state, they could lead to further civil unrest. Moreover, the UK situation is not unique. In fact, more Western governments are facing, or will soon face, problems similar to those in the UK.
Other Western governments, like the United States and France, are also running large fiscal deficits that will continue to grow. The main problem is the structural cost of the welfare state, particularly the costs associated with an aging population (e.g., healthcare and pensions). At the same time, governments increased spending during the pandemic and after the energy crisis caused by the war in Ukraine. Since then, governments have also become more protectionist as they aim to spend more on defense and building up local industries.
The problem of government finances is also growing worse because in the current political climate of civil unrest and populism it is difficult to propose higher taxes and/or lower spending, so most governments have opted to spend more and even cut taxes instead. As a result, financial markets are already on high alert. As the UK found out in September 2022, when concerns over the funding of proposed tax cuts led to a spike in the UK government's borrowing costs.
Other Western countries are also at risk. Last May, for example, Standard & Poor's downgraded France's credit rating from AA to AA–. Combined with the recent election results, where no party has a majority, France now has a hung parliament, which will make it more challenging to reform government finances.
Austerity through higher taxes and/or lower spending could exacerbate civil unrest. In fact, between 2010 and 2023 in the UK, net per capita spending on transport and roads was cut by 40%, on housing by 35% and on cultural services by 43%. On a daily basis, the British people are dealing with the consequences. Prisons are near capacity, resulting in early releases and delayed trials. Roads are increasingly full of potholes. During heavy rain sewage overflows into rivers. Multiple local councils have issued bankruptcy notices.
The health service is particularly bad, with many Britons struggling to get an appointment with their doctor. Waiting times in accident and emergency departments (A&E) have increased over the past decade. Since 2013/14, the NHS has failed to meet the four-hour standard, and 2023/24 was the worst year on record, with 10% of patients (1.5 million people) having to wait more than 12 hours (a threefold increase since 2019).
With government finances unsustainable and austerity measures growing more likely, civil unrest is here to stay. The riots in the UK this August, although there are other factors at play, are an extreme example, but protests also take non-violent forms, such as the Boycott Water Bills movement, where people across England and Wales are refusing to pay water companies because they are not doing their job. Another manifestation of unrest is strikes for better pay, like the junior doctors who won a pay rise last July after months of disruptive strikes.
