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Britain's budget cuts outline radical path toward smaller government

Britain announced deep and wide-ranging budget cuts today that aim to eliminate its $245 billion deficit over the next five years.

By Correspondent / October 20, 2010

An employee walks past rows of televisions at an electrical store in Edinburgh, Scotland, showing Britain's Chancellor of the Exchequer George Osborne, Oct. 20. Britain said on Wednesday it would cut half a million public sector jobs, raise the retirement age and slash the welfare state as part of the biggest spending cuts in a generation.

David Moir/Reuters

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London

Britain’s deepest cuts in public expenditures since World War II were unveiled today in a five-year plan to clear its deficit and lay the foundation for a radical transformation of the state.

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After months of preparing citizens for the worst, the coalition government unveiled cuts of 19 percent on average across most departments. The ax will fall particularly hard on welfare benefits, and the government plans to raise the retirement age from 65 to 66. Only a few priority areas are being shielded, such as the iconic National Health Service (NHS).

The actions – designed to allow the government to start paying back debts that are expected to reach $1.4 trillion (70 percent of GDP) in the next few years – split economists. Some laud them as boldly instructive for debt-stricken nations elsewhere, while others warn that the cuts could tip the UK’s fragile economy back into recession.

“Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt,” said Chancellor of the Exchequer George Osborne, who has consistently used Greece’s debt crisis as an example of what awaits if the UK’s deficit is not urgently tackled. “It is a hard road, but it leads to a better future.”

Alongside $45 billion in tax hikes over the next five years, Mr. Osborne expects that $125 billion in cuts over the same period will eliminate Britain's $245 billion deficit.

Social welfare hit hard

The four-month-old coalition government of the Conservative Party and Liberal Democrats is staking its future on hopes that the private sector will pick up the slack from the cuts – and give jobs to thousands of out-of-work state employees.

But Kitty Ussher, a former minister in the previous Labour government who now directs the left-of-center think tank Demos, says that the depth of the cuts heralded grave dangers at a time when many fear Britain could be at risk of another recession.

“I think the risk of that happening has increased in the last month,” she says. “It looked for example like consumer confidence was feeling quite buoyant in early summer, but the most recent indicators are that that has dropped off substantially.”

“House prices are looking a bit wobbly and crucial economic indicators from forecasting companies have nosedived recently,” says Ms. Ussher.

While social welfare took the brunt of the cuts, few areas of life in the UK will remain untouched by today’s announcement, including institutions such as the BBC. The queen will reduce spending by 14 percent in 2012/13, a $7.8 million drop.

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