Thatcher II? Britain poised to slash budgets, government's role.
UK Chancellor of the Exchequer George Osborne told parliament today that the new government will be seeking broad public input on an 'emergency budget' designed to slash the deficit and modeled on a crash program used by Canada in the 1990s.
(Page 2 of 2)
Mr. Dolphin explained that while there's little room in the UK for further interest rate cuts, which typically stimulate economic growth, Canada began its crash program at a time of relatively higher interest rates, so was able to compensate for the negative economic impact of spending cuts with interest rate reductions.Skip to next paragraph
Subscribe Today to the Monitor
Most Britons accept that stringent cuts are on the way, and need to be made in one form or other, even if their consequences haven’t quite sunk in and the opposition Labour Party says the government could jeopardize Britain’s fragile recovery by wielding the axe too deeply and too soon.
“We know that bringing down the deficit is what needs to be done but there is a delicate balancing act in terms of timing,” says Simon Kirby, an economist at the National Institute of Economic and Social Research (NIESR), an independent body that produces influential forecasts for the UK economy.
For whom the axe falls
The axe has already fallen elsewhere in Europe.
Irish police and teachers have had to swallow pay cuts of 15 percent, Portugal has frozen public salaries, and France and Greece have raised the retirement age.
In Germany, a latest round of cuts have been introduced by the government while Spanish public sector workers took to the streets today in protest against an average 5 percent cut in pay that comes into effect this month.
After a Keynesian response to the initial financial crisis that saw a surge in government spending, Britain is now part of a wider European embrace of austerity, even if some say it still hasn’t yet gone far enough in the UK.
The credit ratings agency Fitch warned today that Britain’s rise in public debt ratios since 2008 has been faster than in any other AAA-rated country – the top credit rating a country can have. The country’s deficit is nearly twice as large as that seen during previous economic downturns in the 1970s and early 1990s.
Mr. Kirby cautions that “in all likelihood” Britain’s recovery will be a weak one, while “major risks” exist in the form of Europe’s difficulties.
“Economic growth will eventually accelerate in the UK but it will be painful before then. Unemployment will rise and will continue to rise until next year for example - even if it doesn’t reach 10 percent," he says. “In the meantime, involving the public in a debate can only be a good thing. You need the population to be on board in order to do tackle the deficit and that is the approach they [the government] seem to be taking."
- Cameron and Clegg: a show of unity in Britain
- Britain's Cameron – prime minister-in-waiting?
- Will David Cameron hit it off with Obama more than Brown did?