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October 20, 2010 11:30 pm

UK unveils dramatic austerity measures

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The UK’s Conservative-led coalition has announced the most drastic budget cuts in
living memory, outstripping measures taken by other advanced economies which are also under pressure to sharply reduce public spending.


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The sweeping cuts in spending and entitlements far exceed anything contemplated in the US where Barack Obama, the president, has proposed only a three-year freeze on discretionary spending and Congress is still debating whether to extend tax cuts for the wealthy.

The UK cuts of £81bn ($128bn) over four years are the equivalent of 4.5 per cent of projected 2014-15 gross domestic product. Similar cuts in the US would require a cut in public spending of about $650bn, equal to the projected cost of Medicare in 2015

The UK deficit is about 10 per cent of 2010-11 GDP. The US deficit was $1,294bn, or 8.9 per cent of GDP, in the 2010 fiscal year.

Declaring that “today is the day where Britain steps back from the brink”, George Osborne, the chancellor of the exchequer, revealed dramatic reductions to core departments over the next four years, a £7bn fall in welfare support and 490,000 public-sector job cuts by 2014-15.

“Tackling the budget deficit is unavoidable,” Mr Osborne told parliament. “To back down now and abandon our plans would be the road to economic ruin.”

Following the crisis in Greece, UK policymakers are concerned about the willingness of investors to keep holding UK debt.

Local government will suffer more than most with reductions of nearly 30 per cent by 2015. The police force will see its budget trimmed by 16 per cent.

Two areas – the £4.6bn science budget and overseas aid, which will reach 0.7 per cent of GDP by 2013 – were protected.

Mr Osborne confirmed that the government was raising the state pension age from 65 to 66 for men from 2020. An attempt by France to raise the pension-able age from 60 to 62 has led to paralysing strikes.

On Tuesday, cuts of 8 per cent to the defence budget were laid out separately in the strategic defence review. The Ministry of Defence and the armed forces are facing cuts of 42,000 jobs by 2015.

Hundreds of London-based diplomats will be made redundant, while the BBC will take on the full cost of running the World Service, which has been subsidised by the Foreign Office.

The BBC itself has agreed to a funding cut of £360m, or one-tenth of the licence fee levied to fund its services. The cuts are the equivalent to the budget of all its national radio services combined.

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