On 10/21/2010 the British government announced the country’s steepest public spending cuts since World War II, reducing costs in government spending by 19%. Public sector jobs, welfare, and child benefit payments will be impacted, while certain elderly benefits will remain.
George Osborne, Britain’s top finance minister, announced that 490,000 public sector jobs would be lost (some to attrition) over the next four years due to the huge austerity measures.
Savings include $11 billion a year from reduction in payments to the long term unemployed who fail to seek jobs, as well as a 12 month limit on jobless benefits as part of measure to curb welfare fraud.
The official retirement age will be increased from 65 to 66 starting in 2020.
Child benefit payments will cease to those earning more than $70,000 a year.
However, free eye tests, prescription drugs, and bus passes, would remain available to the elderly.
Britain’s public deficit of 11.5% of economic output, is among one of the highest in developed economies. The US deficit is running at 10.7%. The government expects total reductions of about $135 billion CDN in spending by 2015.
The Concern Over UK’s Massive Spending Cuts
There is a large concern among economists, regarding such massive austerity and spending cuts. It is not a question whether such spending cuts and reduction in inefficiencies are necessary. There is concern that reductions on such a massive scale at this point in time may stall the economic recovery and send them into a deeper recession. It Is believed by many that it may actually lead to
lead to lower growth, employment, and tax revenues. This reduction is large in contrast to the huge stimulus spending of the United States. Both countries have huge deficits, but the approaches are either spend more now to create more later to pay the deficit down, or pay the deficit down now to have more later.
I believe a more balanced approach should be taken where there are austerity measures to eliminate inefficiencies, reduce entitlements, and curb fraud, but to also use the savings for spending on productivity and growth creation. Basically governments need to reduce money sucking liabilities, but at the same time invest in ways to be productive and grow assets (make nation more competitive).