British Government Announces Steep Budget Cuts

Britain has now joined other European countries in entering an era of austerity. The new center-right coalition government has announced a budget that aims to slash public spending by 25 percent over the next four years, increase the sales tax to 20 percent, cut welfare spending, and shrink the role of the state in British economic life.

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Less than two months after taking office, Britain's new government has introduced an emergency budget. It's the center-right coalition's attempt to stop the debt-laden U.K. from going the same way as Greece.

The budget is, in a word, severe. It slashes public spending, and it raises taxes. As Vicki Barker reports from London, it's also the opposite of the approach taken by their Labour predecessors and indeed by President Obama.

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VICKI BARKER: Chancellor of the Exchequer George Osborne had already warned lawmakers everyone except Britain's poorest would share the pain. But when he announced that national sales tax will go up from seventeen and a half to 20 percent next year, there was uproar.

Mr. GEORGE OSBORNE (Chancellor of the Exchequer, United Kingdom): The years of debt and spending make this unavoidable.

BARKER: Osborne did raise the minimum level of income tax, which he said would save lower-income families an estimated $300 a year. But there were other significant tax increases plus public-sector budget cuts totaling 25 percent over four years. Only the health service and international aid will be immune.

Opposition Labour leader Harriet Harman called it folly.

Ms. HARRIET HARMAN (Leader of the Labour Party, United Kingdom): You do not get borrowing down by stifling economic growth. This reckless budget's shortsighted approach will jeopardize the recovery and make the deficit worse.

BARKER: But with one out of every four dollars of government spending borrowed, Osborne argued there is simply no choice.

Ms. OSBORNE: Questions that were asked about the liquidity and solvency of banking systems are now being asked of the liquidity and solvency of some of the governments that stand behind those banks. I do not want those questions ever to be asked of this country.

BARKER: Standing outside Parliament just after the session, former Labour Trade Minister Lord Digby Jones said he thought George Osborne had probably stilled any such questions, at least for now.

Lord DIGBY JONES (Former Minister Trade Minister, United Kingdom): I think that big sign has gone up today around the world, saying Britain's serious about sorting out this economic mess. We will carry on providing it with credit facilities at a lower rate of interest, and we will still invest in the nation. I think at that top line, I think job done today, as long as, by the way, go and deliver it, George. I mean, there's one thing talking about it in there, and there's another thing doing it.

BARKER: Sally Copley of the charity Save The Children was standing outside Parliament, too. She said she couldn't get too enthused about George Osborne's pledge not to do anything to increase child poverty.

Ms. SALLY COPLEY (Save The Children): There are 3.9 million children in this country still living in poverty. When we talk about child poverty not getting any worse, it makes it sound like there's just a few.

BARKER: Even if all of the budget cuts and tax hikes are enacted, government spending here will still be $100 billion higher in another four years, much of that increase servicing Britain's trillion-dollar debt.

For NPR News, I'm Vicki Barker in London.

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