Britain gears up for drastic emergency budget TuesdayJune 21st, 2010 - 4:18 pm ICT by IANS
London, June 21 (IANS) Britain is gearing up for severe hardships with the David Cameron government set to announce its emergency budget Tuesday, wielding the axe on public spending to reduce the massive public debt of 903 billion pounds - equivalent to 62.2 percent of the country’s GDP.
Forecasts are that it will hit growth and cost jobs in the short term but ensure economic recovery during the tenure of the current parliament.
The government has already prepared the ground for a stifling budget by cutting 12 projects worth 2 billion pounds and suspending a dozen more worth 8.5 billion pounds.
Treasury Secretary George Osborne announced the cuts to hospitals, police, social security payments, schools, libraries, leisure projects and roads. Free swimming for the over-60s and under-16s is to be abolished.
The axe also fell on a Stonehenge visitor centre, saving 25 million pounds, a 7 billion pounds programme to replace the fleet of Sea King search-and-rescue helicopters, a 1 billion pounds allowance provision for the young unemployed and an 80 million pounds loan to Sheffield Forgemasters to manufacture nuclear parts. A funding proposal of 45 million pounds for the British Film Institute’s planned film centre on the South Bank has been scrapped.
Incidentally, the axe fell three times on Sheffield, the constituency of Deputy Prime Minister Nick Clegg, costing more than 100 million pounds. Along with the Forgemasters loan, which had been intended to support the nuclear industry, a 13 million pounds industrial park was cancelled and 12 million pounds plans to modernise the city’s shopping centre suspended.
Another expected cut may be in the form of an offer of a 12-month national insurance holiday for the first 10 workers employed by new firms during the next three years. Osborne’s announcement that he is examining ways of cutting down the public sector pensions bill has invited a warning from the British industry that it could lead to drastic union strikes.
The cuts are but a forecast of how Osborne will use his budget to announce by how many tens of billions he intends to reduce spending. His argument will be that the risks to growth from deficit reduction are smaller than those from the increase in interest rates that would result from the financial markets cutting up rough.
The government thinking is, as The Guardian put it, the problem with the public finances is that spending is too high rather than that taxes are too low. It would prefer to cut 4 pounds in spending for every 1 pound it raises in taxes, which is the ratio proposed by both the IMF and the Organisation for Economic Co-operation and Development. Osborne hinted on Andrew Marr’s television show Sunday that he might not be able to achieve this goal, which is an exceptionally testing one.
The government is unwilling to axe funding to the National Health Service and international development by more than necessary. This means Osborne is left with the choice of either raising money through increased taxes or announce a 25 percent cut across the board. Experts, however, expect him to take the middle path and announce both tax increases and benefit cuts Tuesday.
The government hopes that an improved private sector performance along with increased consumer spending will offset the impact of the cuts on the country’s growth rate.
What holds for Britain in Tuesday’s budget is more or less summed in what Prime Minister David Cameron told a European Union summit in Brussels recently: “If we don’t deal with our debts and deficit we will never have the economy we need to get sustainable recovery.”
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