British Prime Minister David Cameron’s two-week old coalition took its first steps toward curbing the record peacetime budget deficit by announcing £6.25 billion (US$9 billion) in spending cuts this year.
“If we didn’t take action now, we would be putting the stability of the British economy in grave danger,” British Chancellor of the Exchequer George Osborne told reporters in London yesterday.
He said that £500 million of cuts would be “recycled” and go back into the economy, while “the great majority will go towards cutting the deficit this year” so the UK could avoid a planned increase in the National Insurance levy on incomes.
The move is designed to show investors the new government’s resolve on cutting a deficit that swelled to 11.1 percent of GDP in the fiscal year that ended in March, the highest since World War II.
The UK needs to take “urgent action” to curb the shortfall, Osborne said.
Osborne has pledged to reduce the bulk of the £156 billion deficit over the next few years. The cuts announced will be dwarfed by a spending review due later this year that will slash departmental budgets over the three years starting April next year, threatening job losses across the public sector.
Announcing reductions in central government spending, including £836 million of savings at the business department, UK Chief Secretary to the Treasury David Laws said the action was designed to send a “shockwave” through ministries.
“These are only the first steps we will need to take to put our public finances in order,” Laws said. “The years of public sector plenty are over.”
Earlier, the Sunday Times reported that the Department for Business, Innovation and Skills would bear the brunt of the initial cuts, making savings of £900 million.
It added that the coalition planned to save £513 million by slashing the budgets of advisory bodies and abolishing others, while civil servants’ perks such as taxis, flights and hotel accommodation were also targets.
The coalition of Cameron’s Conservative party and Clegg’s Liberal Democrats could also end up cutting between 300,000 and 700,000 public sector jobs over the coming years, the weekly broadsheet said.
The government also plans to secure £8 billion via a special tax on banks, the Independent on Sunday said.
The paper said the figure is nearly three times higher than originally planned by Osborner. Ahead of the country’s general election earlier this month, Clegg had publicly opposed plans by the Conservatives to cut public spending this year by £6 billion, saying it was too much, too soon.
But on Sunday, he warned of hard times ahead and revealed the escalating eurozone crisis had persuaded him it was right to start making cuts immediately.
“The age of plenty where money could be thrown around in almost carelessness, which is what the outgoing Labour government has done for some time now, is over,” he said in a BBC interview.
“I don’t think anybody could have anticipated then [before the election] quite how sharply the economic conditions in the eurozone would have deteriorated and that the need to show that we were trying to get to grips with this suddenly became much greater,” he said.
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