Published on News Center, by Reuters, May 25, 2010.
… But the rest would be used to bring down the deficit. Government advisory bodies – known as “quangos” – would lose 513 million pounds in funding. There would be a hiring freeze across the civil service and almost all departments would have to find savings.
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The business ministry, for example, will have its budget cut by more 800 million pounds.
“The new government deserves credit for identifying these cuts on a department-by-department basis in the space of less than two weeks,” said Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club.
“But we must remember that 6 billion pounds is still a drop in the ocean compared with the scale of tightening that will be required over the course of the parliament. The emergency Budget and the subsequent Comprehensive Spending Review remain the crucial junctures for assessing how credible the deficit reduction programme will be.”
While the task ahead is clearly massive, figures released last week suggested that at least the worst may be over for public finances, with tax receipts up sharply.
Borrowing for 2009-10 was revised lower by 7.5 billion pounds. Excluding financial sector interventions, it stood at 156.1 billion pounds, some 10 billion pounds lower than predicted in the budget in March.
But there is no escaping the fact government spending will have to come down significantly, putting the coalition on a collision course with increasingly militant unions.
“We do not accept that huge spending cuts are necessary or desirable, and we do not believe it is credible for the government to say it can protect public sector jobs and services while taking the axe to departments in this way,” said Public and Commercial Services Union general secretary Mark Serwotka.
Bank of England Monetary Policy Committee member Kate Barker said she thought extra fiscal tightening would act as a headwind to growth but said that markets might take fright if nothing was done to bring down the deficit.
“So it is very important that the … (June 22 budget) is something which is going to avoid further rises in gilt yields. And this tells us that fiscal policy faces some really very difficult choices,” Barker told the Financial Times in an interview published on Monday. (full text).
Link: See also From the beginning to the end of Neo-Liberalism in Britain, on Global Geopolitics & Political Economy, by editors, on May 19, 2010.