Global General
Britain unveils plans to cut record deficit
(Agencies)
Updated: 2010-05-25 09:26
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LONDON?– Britain's new coalition government unveiled details on Monday of some ￡6.2 billion in cuts to "wasteful" spending, to begin slashing a record deficit in line with a key campaign pledge.
The cuts -- immediately slammed by labour unions, but seen by analysts as sending an essential signal to nervous markets -- include a freeze on civil service recruitment and reductions in numerous programmes.
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But new Conservative Chancellor George Osborne insisted the cuts were essential.
"In the space of just one week we have found and agreed to cut ￡6.25 billion of wasteful spending across the public sector," he said, the equivalent of 7.2 billion euros or $8.9 billion.
"We inherited a terrible economic situation and we are going to put it right," said Osborne, who will also present an emergency budget on June 22 to address the dire state of public finances.
Finances have been ravaged by a record-length recession that has slashed tax revenues and ramped up expenditure, as well as by enormously expensive banking sector bailouts.
Official data last week showed the deficit had hit ￡156.1 billion in 2009/2010, or 11.1 percent of gross domestic product (GDP) -- lower than the previous estimate of ￡163.4 billion, but still a record high level.
Osborne added that the Greek crisis highlighted the need to act fast amid deepening financial market concerns about high public deficit levels in the eurozone.
"My job is to make sure that this country can live within its means because we have inherited the largest budget deficit in Europe as an incoming government," he told the BBC.
The new savings include almost ￡2 billion on IT programmes and linked costs, more than a billion on "discretionary" spending such as consultants and travel and over 700 million by cutting recruitment and quangos.
Trades Union Congress (TUC) boss Brendan Barber slammed the announcement.
"The cuts announced today are deeply worrying. With the UK economy and the economies of our trading partners in Europe so fragile, this is not the right time to be cutting back," he said.
"If the UK starts drifting back into recession as a result of cuts, the deficit will only widen and the money markets will become even more panicked," he added.
But analyst Michael Saunders of Citi European Economics said the quick Tory action had two main aims.
"The first is to show financial markets and investors that the UK is serious about reducing its fiscal deficit," he said, noting that "repeated fiscal slippage" by the last government had dented its "fiscal credibility".
"The second aim is to show voters that it is possible to tackle the fiscal deficit without seriously denting economic growth or undermining key public services," he added.
Ahead of the general election earlier this month, Lib Dem leader Nick Clegg had publicly opposed plans by the Conservatives to cut public spending this year by ￡6.0 billion, saying it was too much, too soon.
But on Sunday, he warned of hard times ahead and revealed the escalating eurozone crisis had persuaded him it was right to start making cuts immediately.