Thu, Oct 21, 2010 - Page 11 News List

Britain slashes spending

AMBITIOUS:Public opposition to the cuts has been muted compared with France, but a think tank said the government could only push through half the cuts

REUTERS, LONDON

Britain said yesterday it would cut half a million public sector jobs, raise the retirement age and slash the welfare state as part of the biggest spending cuts in a generation.

After months of bitter negotiations, British Chancellor of the Exchequer George Osborne, a Conservative, confirmed he would press ahead with almost all the spending cuts he had outlined in a June budget.

Capital spending, however, would be £2 billion (US$3.2 billion) higher than a year originally planned because of the difficulty of getting out of contractual obligations, he said.

“Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices. And today we make them. Investment in the future rather than the bills of past failure. That is our choice,” Osborne told parliament.

Economists are split between those who say the drastic action is needed and those who argue it will tip Britain back into recession. Almost all agree, however, that growth will slow and the Bank of England will have to keep monetary policy super-loose for the foreseeable future.

Sterling trimmed gains against the dollar and slipped versus the euro yesterday and some analysts linked the move to Osborne reiterating plans to impose a levy on banks.

Osborne said that the state pension age for men and women will increase to 66 by 2020: “Raising the state pension age is what many countries are now doing, and will by the end of the next parliament save over £5 billion (US$7.9 billion) in a year.”

He said he would also cut a further £7 billion off the welfare budget on top of the £11 billion of reductions he identified in June. Around 490,000 public sector jobs were likely to disappear over the next four years.

Unions have already decried the likely job losses. However, public opposition to the cuts in Britain has so far been muted compared with France, where unions are trying to force a retreat on pension reform with protests including blockades of fuel depots.

There have also been protests against the austerity budget that Spain’s parliament was to approve yesterday, while in Portugal unions have called a general strike for Nov. 24 as the minority government bargains for support in parliament for measures needed to shore up investor confidence.

The British government is braced for an uproar, but Osborne said he had no choice given the record budget deficit of 11 percent of GDP — the highest in the G7 — to around 2 percent in 5 years, a fiscal tightening of some £113 billion, a quarter of which will come from tax rises.

No previous British government has tried anything as -ambitious and the National Institute of Economic and Social Research think tank said yesterday it thought the government could only push through half the planned cuts.

The latest Reuters/Ipsos MORI political monitor on Tuesday showed 38 percent of people believe the center-right Conservatives have the best economic policies compared to a quarter who preferred the opposition Labour Party’s stance.

The Liberal Democrats, the junior coalition partners, have seen their support plummet in most polls as they have become party to policies they did not support before May’s election.

Much will depend on how the economy copes with the fiscal tightening. For now, the consensus is that Britain will achieve slow growth for a couple of years as the private sector picks up the baton from a deflated public sector.

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