UK government stakes its future on austerity plan

AP News
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Posted: Oct 20, 2010 2:39 PM
UK government stakes its future on austerity plan

Britain outlined the sharpest cuts to public spending since World War II on Wednesday _ slashing benefits and cutting public sector jobs with an austerity plan aimed at clearing record debts that swelled during the global financial crisis.

After the country spent billions bailing out indebted banks, and suffered a squeeze on tax revenue and an increase in welfare bills, Treasury chief George Osborne has staked the coalition government's future on tough economic remedies.

Osborne confirmed there would be 81 billion pounds ($128 billion) in spending cuts through 2015, which he claims are necessary along with some tax increases to wipe out a spending deficit of 109 billion pounds ($172 billion).

As many as half a million public sector jobs will be lost, about 18 billion ($28.5 billion) axed from welfare payments and the pension age raised to 66 by 2020, earlier than previously planned.

Even Queen Elizabeth II will take a hit, asked to trim the budget the government provides for her staff by 14 percent.

"It is a hard road, but it leads to a better future," Osborne said, preparing the public for hardship as he seeks a balanced budget within four years.

Osborne stood on the floor of the House of Commons for more than an hour and dismantled program after program built during the Labour government's 13-year reign, saying Britain must pay "the bills from a decade of debt."

The Conservatives promised to scythe through Britain's debts after they made an unlikely pact to form a government with the smaller Liberal Democrats following an inconclusive May election.

Labour lawmaker Alan Johnson, his party's economic spokesman, claimed many Conservatives relished the chance to shrink the size of the British state. "We've seen people cheering the deepest cuts to public spending in living memory," he said.

Osborne insisted Britain's richest would bear the greatest burden of tax rises and welfare cuts, citing changes that will see about 1.5 million better off families lose child benefit payments. However, housing payments and about a dozen other benefits for poorer Britons will also be restricted.

As ordinary Britons lose out, Osborne confirmed that a temporary levy on bank balance sheets will be made permanent to "extract the maximum sustainable taxes from the banking system."

Spending on health, education and overseas aid will be maintained at current levels or increased, while many major transport and climate change projects will go ahead.

But almost all other areas of government face average cuts of 19 percent to their budgets _ which are severe, but not the 25 percent cuts initially feared.

Some critics believe the government could have chosen to clear Britain's debts at a slower pace, protecting public sector jobs. They accuse Osborne of an ideological commitment to small government _ and using the crisis to accomplish that.

"This spending review will throw a generation of people on the scrap heap," said Mark Serwotka, general secretary of the Public and Commercial Services labor union. "These cuts are a political choice."

Osborne confirmed the policing budget will fall by 4 percent a year _ part of an overall 23 percent cut to the Home Office's resource spending. The Association of Chief Police Officers said Britain would have fewer police as a result.

In one of the most significant proposals, Osborne said the state pension age for men and women will rise to 66 by 2020, four years early. It will alter retirement plans for 5 million people, but save 5 billion pounds ($7.8 billion) a year once it comes into effect.

Members of the public across Britain were anxiously examining the details, fearing the impact on jobs and services

"We didn't know four years ago that we would be in this mess, and now that we are in the middle of it we just have to adapt," said Francois Borne, a 52-year-old art expert.

Ronke Osekita, a 40-year-old government inspector, said executives _ rather than police officers _ should be lost under the cuts. "You can't put a price on real safety, or the feeling of safety," she said.

In the southern London district of Croydon, Eileen Dean, an 83-year-old retiree, worried about the possible closure of a government-funded community group in her neighborhood.

"The kids aren't going to have anything to do, it'll be back to playing football in the streets and breaking windows," she said, as the group met on Tuesday. "I might have to join them."

Britain's 85-year-old former leader Margaret Thatcher was among others debating the plans. Her son said she was pondering the consequences from her hospital bed, after being admitted Tuesday following a bout of flu.

Her successor, David Cameron, announced earlier an 8 percent cut to the annual 37 billion pound ($59 billion) defense budget over four years. Osborne acknowledged the country's spy agencies must also make savings.

Despite a 650 million pounds ($1.03 billion) package for new cyber terrorism defenses, Britain's three major intelligence agencies face about a 7.5 percent cut over five years. They share an annual budget of about 2 billion pounds ($3.2 billion), though the government never discloses the share given to each agency.

Hundreds of London-based diplomats are likely to lose their jobs under a 24 percent cut to the foreign ministry's resource budget, while the British Broadcasting Corp. must take on the full costs of running the World Service _ previously subsidized by the Foreign Office.

However, despite the cuts to domestic spending, Britain will meet a U.N. target to spend 0.7 percent of gross national income on overseas aid by 2013, he said.

"Even in these difficult times we will honor the promise we made to some of the very poorest people in the world," Osborne said. Some analysts predict the public may demand aid spending is reduced as they cope with hardships at home.

Recent surveys and protests suggest many Britons are already uneasy, before the impact of spending cuts is even felt. On Tuesday, hundreds of labor union members marched to Parliament _ and a handful of climate campaigners climbed atop the Treasury building _ to oppose Osborne's plans.

Hilary Green, a 58-year-old lawyer said the government got its priorities wrong.

"I'd definitely have more police than a lower national debt," she said at London's King's Cross rail station. "They should focus on taking away desk jobs, not retiring people from the front lines."

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Associated Press Writers Benjamin Timmins, Alia Gilbert and Raphael G. Satter in London contributed to this report.