Britain’s risky severe cuts

Britain’s Conservative-Liberal Demo-crat coalition gov-ernment has an- nounced massive spending cuts of £83 billion in an attempt to eliminate the structural deficit and stabilise public debt by 2014-2015.

Announcing the austerity cutbacks in Parliament last Wednesday, Chancellor of the Exchequer George Osborne declared that “today is the day where Britain steps back from the brink”.

Osborne not only revealed huge reductions in spending by key government departments over the next four years – including a £7 billion decrease in welfare support – but also told Parliament that about 490,000 public sector jobs would be lost by 2014-2015.

The cuts can only be described as drastic, some would say savage, and the government – which means both the Conservatives and the Liberal Democrats – has taken a huge political gamble by introducing them with such swiftness.

Not surprisingly, the trade unions, the opposition Labour Party and some economists have warned that the cuts will hurt the poorest members of society most, and will threaten Britain’s fragile economic recovery.

Furthermore, the highly respected Institute for Fiscal Studies said the £7 billion welfare cuts, together with public spending reductions, reinforced the regressive nature of the changes introduced by the coalition since it came to power.

“The tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures, this is unsurprisingly, reinforced,” said IFS acting director Carl Emmerson.

However, business leaders have given a cautious welcome to Osborne’s spending review. Richard Lambert, director general of the Confederation of British Industry, said the spending cuts, though painful, are essential to balance the UK’s books and build its future prosperity. “Now the government must deliver its promised savings by re-engineering public services,” he said.

In a major endorsement for the British government’s spending plans, the International Monetary Fund had also welcomed the government’s spending cuts when the amount was announced last month. The IMF said the UK economy is “on the mend” and described the deficit reduction plan as “essential” in supporting the UK’s debt position, and said it “supported a balanced recovery”.

The IMF also said the UK economy would continue to recover at a moderate pace while the cuts were implemented. It predicted growth of two per cent in 2011, rising to 2.5 per cent in the medium term.

It acknowledged that the spending cuts designed to reduce the government’s budget deficit would hit growth, but said that the economy would continue to recover.

The British government is, of course, right to give priority to eliminating the country’s huge deficit and public debt which if not properly addressed would lead to a far worse economic situation.

The question that everyone is asking is whether the economy, which has only recently emerged from recession, is strong enough to withstand such harsh cuts, the deepest in Britain’s post-war period – even more severe than Mrs Thatcher’s cuts in the 1980s.

Also, how will frontline services be affected by these massive cuts? The coalition’s post-election agreement had pledged that such services would not be affected, but when one considers the extent of such cuts, one wonders if this is possible.

The Budget for local government, for example, has been reduced by nearly 30 per cent by the end of Parliament in 2015, while that of the Home Office Budget has been reduced by 24 per cent. The police force alone will see its spending trimmed by 16 per cent. There have also been cuts in the Budgets for Northern Ireland, Scotland and Wales, transport and justice. Rightly so, spending on health, schools, overseas aid and science has been protected.

The reduction in the defence Budget by eight per cent and that of the Foreign Office by a massive 24 per cent also raised some eyebrows, with some observers questioning Britain’s ability to live up to its international security commitments and obligations. The country, after all, is still at war in Afghanistan.

Do these defence and Foreign Office cuts signal a shift away from Tony Blair’s policy of liberal interventionism, which saw UK military action in Sierra Leone and Kosovo, for example?

I hope not, but in such an economic scenario, I think the coalition government will think twice before pursuing a policy of military engagement overseas. Some observers believe these cuts are simply a reflection of the fact that Britain is no longer a world power and that today’s world now belongs to countries like Brazil, China, India and Turkey.

Only time will expose the real effect of these public spending cuts on the economy and the country’s social fabric. The Conservative-led government, which is fortunate to have the Liberal Democrats in the Cabinet to back it up, has obviously taken a huge risk, and will hope the private sector will be able to absorb those public sector employees who have lost their jobs.

If all goes well and the deficit is eliminated by 2015, accompanied by strong economic growth, then the government could be rewarded in an election. However, there are too many unknowns in the equation.

In a nutshell, the government’s spending review plan is a political and economic leap in the dark.