Britain unveils deep spending cuts to tackle record deficit

20th October 2010, Comments 0 comments

Britain's government unveiled the harshest spending cuts for decades on Wednesday, slashing budgets by around a fifth and taking the axe to the country's comprehensive welfare system.

Finance minister George Osborne said nearly half a million public sector jobs would go as a result of the austerity measures, and the age at which state pensions are paid to men and women would rise to 66 by 2020.

Osborne insisted that the 83-billion-pound (130-billion-dollar, 95-billion-euro) package -- watched around Europe by governments with similar deficit worries -- marked "the day that Britain steps back from the brink."

"This coalition government faced the worst economic inheritance in modern history," he added. "A stronger Britain starts here."

Prime Minister David Cameron's Conservative-Liberal Democrat coalition came to power in May saying it had to take drastic action to eliminate Britain's record 154.7-billion-pound deficit -- a legacy of the previous Labour government.

The opposition, unions and some economists say the cuts are a gamble that could plunge the world's sixth largest economy back into recession.

Osborne confirmed the government would cut 490,000 public sector jobs over four years -- from a total of around six million -- adding that the job losses were "unavoidable when the country has run out of money".

Government departments are facing average cuts of 19 percent over four years except health and overseas aid, which are ring-fenced. They are lower than the expected 25 percent.

The Foreign Office will have 24 percent slashed from its budget, police spending will fall by four percent each year and the Home Office and Ministry of Justice will each fall by six percent a year.

Some of the biggest cuts are being made in welfare, which accounts for around a third of government spending. Osborne unveiled savings of seven billion pounds a year.

He confirmed child benefit will be cut for many higher earners, while raising the state pension age is expected to save over five billion pounds a year. Public sector workers will also have to pay more into their state pensions.

The minister, officially known as the Chancellor of the Exchequer, said the cuts were the "greatest reform to the welfare state for a generation".

Queen Elizabeth II will also feel the pinch, with royal household spending falling by 14 percent in 2012-2013 and the queen agreeing to a one-year suspension of government payments under the so-called "civil list."

Ed Miliband, the leader of the opposition Labour party, said the cuts could harm the economy.

The government is "taking the biggest gamble in a generation with growth, with people's jobs and people's livelihoods," he said shortly before Osborne's announcement.

Unions lined up to lambast the cuts, which have sparked a series of protests in Britain.

"This is not a spending review -- it's a massacre," said Derek Simpson, the joint leader of Unite, Britain and Ireland's biggest union.

Dave Prentis, general secretary of UNISON, the largest public sector workers' union, said the "ideologically driven" cuts were "poisoning the country's chances of recovery."

Some 800 students marched in central London Wednesday, brandishing banners which read "Stop the cuts, join the resistance" and "All I want for Christmas is a free education."

The education budget faces cuts but on a smaller scale than many other departments.

But business leaders welcomed the spending review -- which the International Monetary Fund also endorsed last month.

"The chancellor has got the strategic direction of this spending review right," said Richard Lambert, director general of the Confederation of British Industry.

The coalition started the cuts process Tuesday, announcing that it would shrink the armed forces, scrap key assets including an aircraft carrier and reduce the defence budget by eight percent.

Among other cuts announced on Wednesday by Osborne, the BBC will take responsibility for funding the World Service, which was previously covered by the Foreign Office.

The spending review was unveiled as official data showed British public sector overspending widened in September to 16.2 billion pounds, a record monthly high.

The pound was down against the euro after Osborne's announcement at 88.10 pence to one euro, but was rising against the dollar at 1.580 dollars to one pound.

© 2010 AFP

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