Britain’s Treasury chief yesterday offered a dampened view of the economy, warning that substantial savings must be gleaned from welfare cuts if the country is to eliminate the deficit.
The British economy has been enjoying a stronger recovery than most European countries, but British Chancellor of the Exchequer George Osborne said there are still big underlying problems.
He said this year is to be the “year of hard truths” and that the country faces a choice.
“Do we say: ‘The worst is over; back we go to our bad habits of borrowing and spending and living beyond our means — and let the next generation pay the bill?’” he said.
Osborne told workers at a Birmingham company that supplies auto components that billions of pounds in welfare cuts will be needed to reduce the deficit, which was swollen by the worst economic crisis since the Great Depression.
“When I took this job, Britain was borrowing more than ￡400 million [US$654.3 million] every single day to pay for government spending,” he said.
“But as a result of the painful cuts we’ve made, the deficit is down by a third,” he said. “That’s the good news.”
“We’re borrowing around ￡100 billion a year — and paying half that money a year in interest just to service our debts,” he said.
“There is still a long way to go — and there are big, underlying problems we have to fix in our economy,” Osborne said.
The government deficit dropped to 5.2 percent of GDP in the 2012-2013 fiscal year, from 7.6 percent in the previous one.
Osbourne’s sober message comes in stark contrast to the recent news on Britain’s economy.
Though the recovery from the 2008 to 2009 recession has not been electrifying, Britain is doing better than most other major economies around the world. Its quarterly growth rate of 0.8 percent in the third quarter of last year is better than Germany’s 0.3 percent and the overall EU’s 0.2 percent.
At the same time, unemployment has dropped to 7.4 percent, its lowest rate in 4 years, and inflation has dropped to 2.1 percent, just slightly ahead of the Bank of England’s 2 percent target.
British Prime Minister David Cameron on Sunday promised any income tax cuts would target lower income earners, and told pensioners they would continue to receive guaranteed rises in their state payouts until at least 2020 if the Conservatives win the next general election.
Cameron vowed that a Tory government would continue the “triple lock” system, meaning pensions would rise in line with the higher rate — inflation or wages — or 2.5 percent.
“A Conservative government will offer pensioners a more secure future by pledging today that we will carry on using the triple lock after the next election to protect the basic state pension,” Cameron wrote in the Sunday Times.