In what has been described in the UK press as “one of the most courageous Budgets in living memory,” Chancellor (finance minister) George Osborne has outlined a series of fiscal belt-tightening measures, including the deepest public sector spending cuts in 50 years.
“We inherited an economic mess, but we can come out of it stronger.”
– George Osborne
The Conservative-led coalition announced a net £5.75-billion (USD 8.3-billion) in cuts to existing government programs this year. Osborne said savings to current programs would total £6.25-billion, with around £500-million of savings to be “recycled” into new programs to help cushion the blow of the economic downturn. Austerity measures are widespread, extending even to the Royal Household with a 14 per cent spending reduction. Osborne also detailed how he planned to take around £80 billion out of the public sector budget over the next four years.
The chancellor said that urgent action is needed “to show the world we can live within our means.”
Brave words indeed for a minority government propped up by a coalition with the Liberal Democrats who generally favour a welfare state. The Lib Dems are a left-of-centre party that was born of a merger in 1988 between the Liberal Party and the Social Democratic Party.
As pointed out by the UK’s Telegraph:
“It has not yet dawned on most Lib Dems that, beneath the bonnet, this was a Tory Budget. The Lib Dem policies which made it through were either ones to which the Tories were sympathetic anyway (raising the income tax-free allowance) or stripped down so they make next to no real cash (capital gains tax). Nor are many Lib Dems aware that Mr Osborne has initiated the biggest stealth welfare cut in recent history: the decision to link tax credits and public sector pensions to CPI inflation rather than RPI will end up costing families a combined £5.8 billion by 2014 – more than £250 for every household.”
Much is being made of the perceived toughness of this budget, however, one should understand that the cuts are only equivalent to 0.4 per cent of the UK’s gross domestic product, and will only slightly lower a troublesome budget deficit estimated to equal more than 11 per cent of GDP. The reduction in the deficit, mind you, will go from 11.8 per cent of GDP to 5.2 per cent over four years.
Though somewhat modest, the budget measures are seen as important first steps to restore confidence in the country’s finances.
We here in Canada are apparently in much better shape than the UK, but this does give a hint of the sort of thing we might see on this side of the Atlantic. Given the growth in government since PM Stephen Harper and Finance Minister Jim Flaherty assumed control of our country’s finances, some retrenchment seems in order.
Public-pay settlements in the UK will be held at a maximum of 1 per cent for the two years from 2011. Given the disparity in pay and benefits in favour of public workers over private workers in Canada, I see a 2- to 4-year pay-freeze as being more appropriate.
There should also be room to trim jobs here after the ramp-up in the civil service to manage the stimulus spending package. And we may want to implement some form of the UK’s budgeted 50 per cent reduction in spending on consultants by government departments and 25 per cent cut in marketing and communications budgets.
I not holding my breath waiting for this to happen, however.