Britain Outlines $9 Billion in Spending Cuts

Britain Outlines $9 Billion in Spending Cuts
# 25 May 2010 00:00 (UTC +04:00)
Baku – APA. Britain’s new finance chief said Monday that the government would push through £6 billion in spending cuts in an attempt to convince skittery financial markets that Prime Minister David Cameron’s policy team is committed to paring high levels of public outlays, APA reports quoting “The New York Times”.
For the Chancellor of the Exchequer George Osborne, who has long pushed the Tory party to adopt an aggressive deficit-cutting strategy, the menu of restrictions, freezes and spending reversals is a first bid to convince a still uncertain public that Britain needs to be in tune with the budget-cutting in Greece, Portugal, Spain and other parts of Europe.
“The years of public sector plenty are over,” he said. “The more decisively we act, the more quickly we can come through these tough times.”
Despite fears of provoking a double-dip recession, Mr. Osborne said even the governor of the Bank of England agreed “that the greatest risk to the recovery was not showing the world that we could live within our means.”
More economists are coming around to the idea that aggressive and well-signaled spending cuts can in fact spur an economic recovery by keeping interest rates low and financial confidence high — a view that counters the more Keynsian approach pushed by former Prime Minister Gordon Brown, which argues that such a pull back would derail a still-weak economic recovery.
Still, £6 billion, or nearly $9 billion, from a deficit over £150 billion is relatively small.
Out of the budget deficit of more than 11 percent of gross domestic product, 9.2 percentage points is structural, according to Citigroup, meaning that even an economic recovery, of which there are already signs, will do little to balance the government’s books.
Monday’s announcement, however, is aimed more as a symbolic shot across the bow of a public sector that has, over the past decade, benefited from billions of pounds of spending from the past Labor government.
“This is really small – no more than a down payment if you look at the scale of the deficit,” said Tim Morgan, the head of research at Tullett Prebon, a British securities firm. “But you have to show intent and you have to start somewhere.”
According to the O.E.C.D., British government spending is now 53 percent of G.D.P. — a level that surpasses Greece and Spain and Portugal.
Among the announced measures are a £1 billion cut in public advertising, tighter restrictions on first class travel for civil servants as well as a raft of memos meant to restrain discretionary spending in such areas as refurbishment.
The cuts hit all departments, with £535 million from the work and pension’s ministry, £325 million from the education ministry, and £451 million from the chancellor’s ministry.
Until now, Britain has been able to finance its deficits at rates below 4 percent due in part to an aggressive bond-buying program by the Bank of England, and to investors steering clear of sovereign debt in the euro zone.
But, as European countries move quickly to cut their own bloated state sectors, Britain will be under increasing pressure to show that it can do the same. If it cannot, it too is likely to see its credit rating jeopardized and its borrowing costs soar.