UK Proposes Drastic New Federal Budget
Today, the British government released its latest proposed budget, one which will dramatically slash spending and significantly raise taxes. All government departments will be forced to cut spending across-the-board, aside from the National Health Service (which is protected by law). On January 4th of next year, Britain’s Value-Added Tax (or VAT) will increase from 17.5 percent to a full 20 percent, expected to raise government revenues by 13 billion pounds annually. At midnight tonight, a higher capital gains tax rate will take effect, impacting Britain’s highest earners, while the effects of the budget cuts on the nation’s poorer citizens is meant to be offset by a increase in the number of Britons who will qualify to pay no income tax at all.
Britain’s Chancellor of the Exchequer, George Osborne, said that these dramatic new budget measures—amounting to the nation’s “harshest budget in decades”—are critical to the stabilization of the recently ballooning British deficit (projected to be 12% of GDP this year, highest of all the EU nations) and the establishment of a sustainable long-term fiscal path. It comes in response to increasing worries in recent years over the UK federal debt, which has been growing at a rate faster than any other European country in recent years and has made this budget “unavoidable.”
Osborne claims that this proposal should ensure that the structural current deficit will be balanced by 2015, with debt beginning to fall as a percentage of GDP (from this year’s 62.2%) by roughly that same year. The budget proposal is also meant to jumpstart economic growth in Britain, predicted to rise from a tiny 1.2% to 2.3% in 2011—and decrease unemployment two percentage points, from 8% to 6%, by 2015.
These budget cuts are indeed a bold move, but indicative of the kind of widespread, sweeping changes that we may need to make in the United States as well in order to curtail our growing deficit and expanding debt. As Osborne told the British Parliament today, “Some have suggested that there is a choice between dealing with our debts and going for growth. That is a false choice. The crisis in the Eurozone shows that unless we deal with our debts there will be no growth.”