UK new gov't announces 1st public spending cuts
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Britain's new coalition government moved quickly Monday to begin its major task of cutting the record public deficit of 156 billion pounds (about 225 billion U.S. dollars).
The cuts announced Monday total only 6.25 billion pounds (about 9 billion dollars) in current budgets, but are highly symbolic and are a little higher than the 6-billion-pound (8.6-billion-dollar) cuts that had been promised and were expected.
They come less than a fortnight after the two parties in the coalition -- the right-wing Conservatives and the left-of-center Liberal Democrats -- announced they would form a government.
They represent the main thrust of government policy over the next five years, and also a tangible sign the government wants to get down to business quickly.
The savings will come from costs such as travel and consultancy, IT savings, delaying and stopping contracts, a recruitment freeze in the civil service, and cutting costs of quangos (quasi-autonomous non-governmental organizations).
Chancellor of the Exchequer, or the finance minister, George Osborne said, "If we don't take action, we will soon be spending more on servicing our debts than educating our children."
He said the public debt, the amount borrowed each year to pay for public services that tax revenue did not cover, was a major issue threatening the stability of in-debt governments across the world.
"Countries are waking up to the dangers of the sovereign debt crisis and are taking action to live within their means," Osborne said.
"Last week, I twice attended meetings of European finance ministers. Sitting at that table of 27 finance ministers, I could not help but be conscious that I represented the country with the biggest budget deficit of all."
"In those councils, the previous British government was an advocate of dither and delay. That has now changed and Britain is now a leading voice in Europe for fiscal responsibility."
Areas like health, defense and overseas development aid were protected from these cuts, and Osborne said that, by cutting elsewhere, he was also able to protect schools, 16-19 year old education spending, and a job-help program for young people from cuts.
Small but highly symbolic savings will be made in areas like travel. Government cars for ministers will be pooled, and they will be expected to walk or use public transport where possible. Any civil servant posts with salaries greater than the prime minister's will have to be reviewed at Cabinet level. First class travel will be highly restricted and organizations which overspend on first-class travel will have the cost deducted from their budgets.
The first flagship policy of the previous Labor government was axed. The Child Trust Fund program, where a lump sum was paid to each child at birth and at age seven for investment, will be rapidly phased out, saving 320 million pounds (460 billion dollars).
Osborne's deputy, the chief secretary to the treasury David Laws, who is a Liberal Democrat, announced the details of the cuts. He said, "If left unchecked, government spending would derail the recovery. Public borrowing is only taxation deferred."
He said this round of cuts was just the first in a long list needed to balance the books. "These are only the first steps we will need to take to put our public finances in shape. The years of public sector plenty are over."
"We promise to cut with care, we will be a progressive government even in these times," he said.
The cuts and their centrality to the government's plans were supported by deputy prime minister Nick Clegg, leader of the Liberal Democrats, in a BBC TV interview on Sunday.
Clegg, whose party had campaigned against immediate cuts in public spending during the general election, said the situation was now different.
"I don't think anybody could have anticipated then quite how sharply the economic conditions in the eurozone would have deteriorated and that the need to show that we are trying to get to grips with this suddenly became much greater," he said.
"That is why we need to show at a more accelerated timetable than I had initially thought that we are going to get to grips with this great black hole in our public finances.
"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.
The next step in the cuts program is the emergency budget from Osborne on June 22, when deeper and more controversial cuts are expected.
The third step in tackling the budget deficit comes in the autumn in a public spending review, when the government will announce cuts spanning three years.
The government has moved with haste for two reasons. First, the events in the eurozone, and particularly in Greece, indicate that sovereign debt is an enormous issue, with international money markets making their unease felt very clearly.
The fragility that this brings is frightening for the government, and it sees an immediate cut in public spending as the best answer for the money markets, which will soon pose the question, "How and when are you going to tackle Britain's sovereign debt?"
The second reason is that the government has a honeymoon period after winning the election when it is still relatively popular. Once the range and depth of the cuts that are going to come is known, that popularity will soon disappear. The government judges it is best to get the cuts started quickly, while it still has some goodwill.
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