U.K. austerity a matter of political will
By Hao Li | June 25, 2010 7:55 AM EST
The success and implementation of U.K.'s additional spending cuts and taxes hikes are largely a matter of political will, said Mortiz Kraemer, Standard and Poor's head of sovereign ratings for Europe.
Chancellor of the Exchequer George Osborne announced a plan Tuesday that would produce savings of 40-billion pounds per year by 2014/2015. Osborne also inherited a plan from the Labour government that would produce savings of 73-billion pounds per year to combine for total savings of 113-billion pounds.
According to projections from Britain's Office for Budget Responsibility (OBR), the cuts will produce a budget surplus of 0.3 percent excluding investment and reduce debt to 69.4 percent of GDP by 2014/2015.
Osborne's plan include 31.9-billion pounds in spending cuts: 11-billion pounds will be from welfare and 20.9-billion pounds from government departments, which will negatively impact the salaries of employees in those departments. Osborne also announced a two-year wage freeze for most government employees.
Speaking at a Bloomberg sovereign debt conference, Kraemer said that the success of implementing these measures will depend on the ability and willingness of the government to proceed in the face of popular opposition.
“At the end of the day, as in other countries, it's a question of political will,” said Kraemer.
Austerity measures, particularly those aimed at cutting benefits and wages, have been fiercely resisted by the public in some European countries, raising doubts over their political feasibility.
In Greece, for example, wage cuts were met with strikes that crippled entire industries and protests that degenerated into violent and even fatal social unrest.
Danielle Haralambous, U.K. economist at 4Cast Ltd. in London, said that she does not believe it is in the disposition of the U.K. public to erupt into social unrest over the proposed austerity measures.
Haralambous also thinks that the rhetoric and PR campaign of the U.K. government in explaining the merits, benefits, and necessity of the budget cuts should assuage public discontent.
She also pointed out that policies of leniency towards some of the poorest people may help public perception. For example, the lowest income families will actually receive 2 billion pounds more in Child Tax Credit.
In response to Osborne's new measures, the OBR cut the GDP growth forecast to 1.2 percent this year and 2.3 percent in 2011. This compares to last week's forecast of 1.3 percent for 2010 and 2.6 percent from 2011.
Commenting on the economic impact of the cuts, Kraemer remarked that the economic outlook will be clouded by it and that government spending cuts will take demand out of the economy.
The key question will be if the private economy can pick up the slack of the government, said Haralambous. She also added that the Bank of England's continued accommodative monetary policy should mitigate the effects of the fiscal tightening.
To contact the editor, e-mail:
Most Popular Slideshows
- The Pirate Bay Founder Gottfrid Svartholm Clears That Fredrik Neij And Peter Sunde Are Not TPB Founders
- ‘The Walking Dead’ Season 5 Spoilers: Daryl Dixon Out There To Save His Two Favourite Ladies In Mid-season Finale
- [In Pictures] Police Fire As Protest Turns Into ‘Riot’ After Grand Jury Decision on Ferguson Shooting
- ‘The Walking Dead’ Season 5, Episode 8 Spoilers: Daryl Dixon Is Set To Burn The Place Down in ‘Coda’
Join the Conversation
- Highest Paid NBA Players 2014: NBA Stars Who Earn More Than LeBron James
- Billionaire Money Habits: 5 Financial Habits Practiced By The World's Richest People
- This Is The Lammily Doll With Freckles And Acne That Make It More Attractive Than Barbie
- Travel Alert: Australia Mulls To Review Airport Security Policy, Could Allow Scissors, Metal Cutlery Back In Planes
- 5 Likely Reasons Why You Are Not Getting Hired
- Russia Is Ready for Shooting War, Will Likely Win Looming Nuclear Showdown with U.S. – Report
- Kobani ISIS Fighter Sends Out Desperate Message For Prayers And Support: Euphoria Turns Into Desperation As Kurds Advance
- Chris Algieri’s Battered Face Trends On Social Media
- Home Depot Early Black Friday 2014 Sale Up To Nov. 29, 2014 Includes Special Buys On Appliances Such As Samsung Refrigerators, Whirlpool Electric Ranges And Hoover Vacuum Cleaners
- Microsoft Band Runs Out Of Stock, But Offers $10 Gift Voucher To Wait-Listed Customers
- Black Friday Sale 2014 Deals From Amazon On Smartphones, TVs, Headsets And More
- Andrew Robb Asks Obama Not to ‘Lecture’ Australia on Climate Change