Britain slashes spending, raises retirement age

Britain will cut half a million jobs, slash the welfare state and raise the retirement age as part of an unprecedented cost-cutting drive that will test the strength of both the economy and the ruling coalition.

Conservative finance minister George Osborne's spending review on Wednesday turned up the heat on the Liberal Democrat coalition partners and kept alive a debate about whether Britain's economic recovery can survive the cuts.

Unions reacted angrily but public protest in Britain in Britain has so far been muted compared with France, where unions are trying to force a retreat on pension reform with protests including blockades of fuel depots.

"Tackling this budget deficit is unavoidable. The decisions about how we do it are not. There are choices. And today we make them," Conservative finance minister George Osborne told parliament.

The fiscal squeeze over the next four years will total more than 100 billion pounds ($157 billion).

Analysts are not convinced, however, that the government will be able to see through the cuts through especially given that it has moved more of the burden on to the welfare budget, lopping off an extra 7 billion pounds on top of the 11 billion of savings previously announced.

As a result of the welfare raid, budgets for government departments outside protected areas like health and overseas aid would shrink by 19 percent, not the quarter announced in the budget.

Capital spending, Osborne said, would be 2 billion pounds higher per year than originally planned because of the difficulty of getting out of contractual obligations.

Osborne said that the state pension age for men and women will rise to 66 by 2020. "Raising the state pension age is what many countries are now doing, and will by the end of the next parliament save over 5 billion pounds in a year."

Around 490,000 public sector jobs are likely to disappear over the next four years.

French protesters are resisting a rise in their retirement age to 62 and British rail union leader Bob Crow urged Britons to look "to the kind of resistance being mobilized by the French trade unions ... as an example of how to repel austerity cuts."

Union Unrest

There have also been protests against the austerity budget that Spain's parliament is due to approve on Wednesday, while in Portugal unions have called a general strike for November 24 as the minority government bargains for support in parliament for measures needed to shore up investor confidence.

The British government is braced for an uproar but Osborne said he had no choice given the need to cut a record budget deficit of 11 percent of gross domestic product (GDP) -- the highest in the G7 -- to around 2 percent in 5 years, a fiscal tightening of some 113 billion pounds ($178 billion), a quarter of which will come from tax rises.

No previous British government has tried anything as ambitious and the National Institute of Economic and Social Research think tank said on Wednesday it thought the government could only push through half the planned cuts.

The latest Reuters/Ipsos MORI political monitor on Tuesday showed 38 percent of people believe the center-right Conservatives have the best economic policies compared to a quarter who preferred the opposition Labour Party's stance.

The Liberal Democrats have seen their support plummet in most polls as they have become party to policies they did not support before May's election.

Much will depend on how the economy copes with the fiscal tightening. For now, the consensus is that Britain will achieve slow growth for a couple of years as the private sector picks up the baton from a deflated public sector.

The latest Reuters poll of economists' forecasts is for GDP growth of 1.6 percent this year and 1.8 percent next year..

But some economists say growth could stall because of the cuts. Many business and consumer confidence measures are already waning even before the measures begin.

[Source: By Sumeet Desai, Reuters, 20Oct10]

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