UK unveils dramatic austerity measures
By Daniel Pimlott and Chris Giles in London and Robin Harding in Washington
Published: October 20 2010 23:30 | Last updated: October 20 2010 23:30
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.
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.
http://www.ft.com/cms/s/0/53fe06e2-dc98 ... abdc0.html
Cutting it back to the bone
Cutting it back to the bone
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: Cutting it back to the bone
In a more general sense it is a good thing to periodically review the budget and cut out some areas whether it is a business, household, or government because if you don't you might find that you're paying for the wrong things and underfunding your highest-value goals.
With all three, there is a wide tolerance for making 'mistakes' in this process as long as the outputs are reviewed openly, honestly and non-ideologically.
The biggest difference between the household budget and the other two is that the person who will themselves, either personally or via family members, suffer the consequences is the person making all the decisions while in the other two suffering is separated from decision-making and the honesty with which results are reported is distorted by an amount proportionate to this distance.
The process employed should reflect the understanding that while balance of interests is sought there is no expectation of perfection in achieving it.
yrs,
rubato
With all three, there is a wide tolerance for making 'mistakes' in this process as long as the outputs are reviewed openly, honestly and non-ideologically.
The biggest difference between the household budget and the other two is that the person who will themselves, either personally or via family members, suffer the consequences is the person making all the decisions while in the other two suffering is separated from decision-making and the honesty with which results are reported is distorted by an amount proportionate to this distance.
The process employed should reflect the understanding that while balance of interests is sought there is no expectation of perfection in achieving it.
yrs,
rubato
Re: Cutting it back to the bone
Oh look who was hiding down there in all those details!
______________________________
http://delong.typepad.com/sdj/2010/10/t ... heory.html
October 21, 2010
The British Conservatives Have No Theory
NewImage.jpg
Shame on David Cameron. Shame on Nick Clegg. Shame on George Osborne.
Their shame would not be quite so great if they had a theory about what elements of spending will grow to offset their 9% of GDP planned fiscal contraction. Is the pound supposed to collapse and are exports than to surge? Is the prospect of rising unemployment in the U.K. supposed to greatly enhance business confidence and trigger a surge of private-sector investment? Is the 30-year gilt yield supposed to fall from 4% to 1% and that reduction in the cost of capital cause a surge of capital formation throughout Britain?
Cameron, Clegg, and Osborne don't tell us.
They don't tell us because they are clueless dorks.
They don't even have a theory about how the economy will avoid a double dip.
They hope that--somehow, some way--Mervyn King will save them from themselves.
But if they actually carry through with their policies, I don't see how he can.
Ryan Avent:
Austerity: Cut to the bone: A TIDE of austerity has swept over much of Europe since markets rebelled at high debt levels in Greece and elsewhere in the spring. Still, the world is watching in amazement as Britain's new government prepares to enact budget cuts that have not inaptly been called revolutionary. Yesterday, George Osborne, the government's chancellor of the exchequer, stood before Parliament and detailed the scope of the plan, which will slash government spending by £81 billion over four years in an aim to reduce Britain's deficit from its present 11% of GDP to 2%.
[T]he scale of the cuts is... breathtaking. The police budget will fall by 20%. Spending on social housing will fall by three-fifths.... Nor will the damage be confined to the public sector. The government is a significant buyer of goods and services from private firms, after all. PwC, a consultancy, said the other day that it thinks that another half a million private jobs could go over the coming five years as a direct consequence of public-sector austerity....
If the private sector does trim half a million jobs due to austerity, it will come on top of the half million public sector positions that will be done away with as part of the cuts. Buttonwood does a good job explaining why such austerity is unthinkable in much of the world, and especially America. And he notes:
The second lesson concerns the division between spending cuts and tax rises. History suggests that it is better to concentrate on the former if you want the plan to succeed. But there is no getting away from the fact that this will affect the poor most; since they are the chief recipients of benefit payments.... The package creates the understandable impression that the poor are paying the price for the folly of the bankers....
From an economic standpoint, the most pressing question is how this will affect the British economy. Mr Osborne is counting on the Bank of England to pick up the slack created by budget cutting, but the Bank has its work cut out for it. It will be very difficult to encourage private borrowing amid such substantial cutbacks.... For now, Mr Osborne and the ruling government are the heroes of deficit hawks and supporters of a small state the world over. But Britain's conservatives have gambled heavily. If deep budget cuts amid economic weakness send the economy plunging back into recession, the government may be unable to make the cuts stick, and austerity could be discredited around the world. If disaster is avoided, it will strengthen the hand of fiscal conservatives everywhere. It would be an exciting experiment to watch if so many livelihoods weren't caught in the balance.
They aren't even holding a King, Queen, 10, and 9, and drawing to an inside straight: they are holding a Deuce, a 5, an 8, and a Jack and claiming that they are drawing to an inside straight.
________________________________-
While I'm glad to see someone else making an experiment which looks likely to be a disaster I would feel even better if there were the slightest change than conservatives will ever learn from experience; from other's painful experience.
yrs,
rubato
______________________________
http://delong.typepad.com/sdj/2010/10/t ... heory.html
October 21, 2010
The British Conservatives Have No Theory
NewImage.jpg
Shame on David Cameron. Shame on Nick Clegg. Shame on George Osborne.
Their shame would not be quite so great if they had a theory about what elements of spending will grow to offset their 9% of GDP planned fiscal contraction. Is the pound supposed to collapse and are exports than to surge? Is the prospect of rising unemployment in the U.K. supposed to greatly enhance business confidence and trigger a surge of private-sector investment? Is the 30-year gilt yield supposed to fall from 4% to 1% and that reduction in the cost of capital cause a surge of capital formation throughout Britain?
Cameron, Clegg, and Osborne don't tell us.
They don't tell us because they are clueless dorks.
They don't even have a theory about how the economy will avoid a double dip.
They hope that--somehow, some way--Mervyn King will save them from themselves.
But if they actually carry through with their policies, I don't see how he can.
Ryan Avent:
Austerity: Cut to the bone: A TIDE of austerity has swept over much of Europe since markets rebelled at high debt levels in Greece and elsewhere in the spring. Still, the world is watching in amazement as Britain's new government prepares to enact budget cuts that have not inaptly been called revolutionary. Yesterday, George Osborne, the government's chancellor of the exchequer, stood before Parliament and detailed the scope of the plan, which will slash government spending by £81 billion over four years in an aim to reduce Britain's deficit from its present 11% of GDP to 2%.
[T]he scale of the cuts is... breathtaking. The police budget will fall by 20%. Spending on social housing will fall by three-fifths.... Nor will the damage be confined to the public sector. The government is a significant buyer of goods and services from private firms, after all. PwC, a consultancy, said the other day that it thinks that another half a million private jobs could go over the coming five years as a direct consequence of public-sector austerity....
If the private sector does trim half a million jobs due to austerity, it will come on top of the half million public sector positions that will be done away with as part of the cuts. Buttonwood does a good job explaining why such austerity is unthinkable in much of the world, and especially America. And he notes:
The second lesson concerns the division between spending cuts and tax rises. History suggests that it is better to concentrate on the former if you want the plan to succeed. But there is no getting away from the fact that this will affect the poor most; since they are the chief recipients of benefit payments.... The package creates the understandable impression that the poor are paying the price for the folly of the bankers....
From an economic standpoint, the most pressing question is how this will affect the British economy. Mr Osborne is counting on the Bank of England to pick up the slack created by budget cutting, but the Bank has its work cut out for it. It will be very difficult to encourage private borrowing amid such substantial cutbacks.... For now, Mr Osborne and the ruling government are the heroes of deficit hawks and supporters of a small state the world over. But Britain's conservatives have gambled heavily. If deep budget cuts amid economic weakness send the economy plunging back into recession, the government may be unable to make the cuts stick, and austerity could be discredited around the world. If disaster is avoided, it will strengthen the hand of fiscal conservatives everywhere. It would be an exciting experiment to watch if so many livelihoods weren't caught in the balance.
They aren't even holding a King, Queen, 10, and 9, and drawing to an inside straight: they are holding a Deuce, a 5, an 8, and a Jack and claiming that they are drawing to an inside straight.
________________________________-
While I'm glad to see someone else making an experiment which looks likely to be a disaster I would feel even better if there were the slightest change than conservatives will ever learn from experience; from other's painful experience.
yrs,
rubato