UK News --- Huge cut in public spending.

UK plans huge cut in public spending

Sarah Lyall and Alan Cowell, October 24, The New York Times :

========================================================= The British government, last week, unveiled the country’s steepest public spending cuts in more than 60 years, reducing costs in government departments by an average of 19 per cent, sharply curtailing welfare benefits, raising the retirement age to 66 by 2020 and eliminating hundreds of thousands of public sector jobs in an effort to bring down the bloated budget deficit.

“Today is the day when Britain steps back from the brink,” a confident George Osborne, who as the Chancellor of the Exchequer is Britain’s top finance minister, told the House of Commons. “To back down now and abandon our plans would be the road to economic ruin.” Wednesday’s announcement of £83 billion, about $130 billion, in cuts by 2015 represents a big political gamble for Britain’s fledgling Conservative-led coalition government. Britain’s public deficit is one of the highest among developed economies, running at 11.5 per cent of total economic output, compared with 10.7 per cent for the United States and 5.4 per cent for Germany. Though the Conservatives have so far made a persuasive case for the deep cuts, outmaneuvering a weakened Labour opposition, the country has yet to feel anything like the pain that is to come as the retrenchment begins to take hold. The coalition government is also gambling that the reductions in public outlays will stimulate the private sector and restart growth, rather than send the economy back into a tailspin, as liberal economists have warned. Spending review Britain has been bracing for the cuts for months, after Osborne announced in June the details of the so-called spending review, but Wednesday was the first time the government had set out its plans, department by department. Osborne said that 4.9 lakh public sector jobs would be lost over the next four years, some to attrition. At the same time, payments to the long-term unemployed who fail to seek jobs will be cut, he said, saving $11 billion a year. Additionally, he said, a new 12-month limit will be imposed on long-term jobless benefits, and measures will be taken to curb benefit fraud. Osborne said an increase in the official retirement age to 66 from 65 would start in 2020 — four years sooner than planned — saving $8 billion a year. Britain has already said it will stop paying child benefit payments to people earning more than around $70,000 a year. But while the government has sought to rein in welfare costs, Osborne announced that several politically sacred benefits for the elderly, including free eye tests, prescription drugs and bus passes, would remain. Britain has about six million public sector jobs, about one fifth of all jobs in the economy, according to the Office for National Statistics. But it was not clear what the impact of shedding 4.9 lakh of them — about 8 per cent of the total — would have on unemployment. Osborne has continually said that the private sector will take up the slack, employing more people as the economy emerges from the doldrums. Osborne promised annual savings of 7.1 per cent in the budgets of local government councils and said there would be a freeze followed by a 14 percent cut in tax money allocated to maintaining Queen Elizabeth II’s household. Public housing tenants, he said, will face higher rents closer to the market rates for private housing. Military spending will be cut by 8 per cent by 2014, he said, but he promised not to reduce spending on British forces in the Afghanistan war. But, he said, the National Health Service — one of the most politically delicate institutions in Britain — will be allocated more money, rather than less. He also said the “resource money” for schools would increase “in real terms” every year. Spending on the police will be cut by 4 per cent a year, he said, but spending on intelligence and security agencies will be strengthened to guard against terrorism and protect London during the 2012 Olympic Games. He also promised to spend about $1.4 billion on measures to curb tax fraud, which cost the tax service about $11 billion a year. Osborne said Britain’s diplomatic corps — the Foreign Office — would lose 24 percent of its financing and cut the number of workers at the headquarters in London. Additionally, the BBC will take over financing the BBC World Service and several other responsibilities, saving the government about $539 million a year, while the BBC’s own mandatory license fee levied on owners of television sets will be frozen for six years. People in the arts had been bracing themselves for deep cuts in government subsidies. But, while Osborne said that administrative costs in the Department of Culture, Media and Sport and in quasigovernmental arts organisations would be reduced by 41 percent, money for “core programs” like museums would be cut by just 15 per cent. The average cut in the budgets of government departments, he said, will be 19 per cent, not the 25 percent he had initially threatened. He said a temporary tax on bank balance sheets would be made permanent. Many Britons, like Americans, are angry with big banks for their role in the world financial crisis. Osborne said the government would seek to extract “the maximum sustainable taxes” from financial institutions. (Deccan herald) =================================================