John
05-24-2010, 07:20 PM
The £6.25billion (8.9 billion dollars, 7.2 billion euros) 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.
Labour's then-prime minister Gordon Brown warned ahead of the May 6 general election that making immediate budget cuts would jeopardise Britain's fragile recovery from the global downturn.
But George Osborne, the new Chancellor in the Conservative-Liberal Democrat coalition, insisted the cuts were essential.
"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.
"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 added.
Britain's 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 bail-outs.
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 pounds, but still a record high level.
Chief Secretary to the Treasury David Laws said more pain was in store.
"This is only the first step on what will be a long road to restoring good management of our public finances," he said, conceding that the cuts were "draconian".
"Even tougher decisions undoubtedly await us in the budget this year and in the autumn spending review if we are to restore responsibility after the years of Labour extravagance and mismanagement of our public finances."
The new savings include almost £2 billion on information technology programmes and linked costs, more than £1 billion on "discretionary" spending such as consultants and travel and over 700 million by cutting recruitment and semi-state bodies known as quangos.
Some £500 million of the cuts will be recycled into programmes to boost jobs and skills, while the rest will go to help pay down the massive national deficit.
Trades Union Congress 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 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 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.
Labour's then-prime minister Gordon Brown warned ahead of the May 6 general election that making immediate budget cuts would jeopardise Britain's fragile recovery from the global downturn.
But George Osborne, the new Chancellor in the Conservative-Liberal Democrat coalition, insisted the cuts were essential.
"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.
"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 added.
Britain's 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 bail-outs.
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 pounds, but still a record high level.
Chief Secretary to the Treasury David Laws said more pain was in store.
"This is only the first step on what will be a long road to restoring good management of our public finances," he said, conceding that the cuts were "draconian".
"Even tougher decisions undoubtedly await us in the budget this year and in the autumn spending review if we are to restore responsibility after the years of Labour extravagance and mismanagement of our public finances."
The new savings include almost £2 billion on information technology programmes and linked costs, more than £1 billion on "discretionary" spending such as consultants and travel and over 700 million by cutting recruitment and semi-state bodies known as quangos.
Some £500 million of the cuts will be recycled into programmes to boost jobs and skills, while the rest will go to help pay down the massive national deficit.
Trades Union Congress 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 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 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.