United Kingdom Outlines $130 Billion in Savings
Budgeteers have been closely watching the United Kingdom during the past six months, as Chancellor of the Exchequer George Osborne and Prime Minister David Cameron have been attempting to overhaul the U.K. budget (see here, here, here, and here). Their plans have come out in small pieces, but now, the entire plan is available.
In June, the British government issued its Budget, setting a target of serious debt reduction (about £113 billion, or about $180 billion) to be reached by 2014-2105. The June Budget set broad tax rates, making several changes to raise an additional £29 billion in revenue, leaving £83 billion in savings to be found among Departmental Expenditure Limits (i.e. discretionary spending) in the 2010 Spending Review.
The British government released the 2010 Spending Review this week, with Osborne identifying £83 billion (about $130 billion) in cuts and savings over the next four years. They amount to an average of a 19 percent cut across all departments--less than the 25 percent that was expected. While the National Health Service is protected from budget cuts and International Development funding is increased, the same cannot be said for the other departments; all of them face cuts of varying degrees.
Welfare programs are cut an additional £7 billion through changes in housing benefits and some tax credits. In addition, employee contributions to public sector pensions will increase by £3.5 billion. Higher education spending will take a significant hit, as will the Foreign Office, the Home Office, law enforcement and Justice, and money to local governments. Defense will face a cut of about 8 percent in real terms, and overall Education a relatively small one (one percent in real terms).
In addition to these changes, the government will increase the retirement age for old-age pensions to 66 by 2020, six years earlier than had been scheduled. These spending cuts come with tax changes that already have been made, such as making their bank levy permanent, raising the VAT rate by 2.5 percentage points, and raising capital gains rates. The sum of all these changes is projected to eliminate the structural deficit by 2015.
The Office of Budgetary Responsibility (basically, the UK's CBO) estimates that the spending cuts could result in the cutting of 500,000 public sector jobs by 2015.
Members of the Labour Party have already been calling for more debate and even votes on the Spending Review. But it looks like, historically, not very many changes have been made to Spending Reviews.
Cameron's and Osborne's fiscal consolidation plan is ambitious and it cuts across a wide spectrum of government, which is laudable. In the U.S., candidates are more willing to fence off parts of the budget (Social Security, Medicare, security spending) or oppose all tax increases than say which parts of the budget they would actually change (click here to read our new release on questions to ask candidates to help determine whether they are serious about fiscal responsibility). Perhaps, David Cameron and company have provided a useful blueprint for the beginning of a deficit reduction plan for the U.S.
In the same light as CRFB's Stabilize the Debt budget simulator, The Guardian has launched a simulator for the U.K budget! In response to the 2010 Spending Review, the simulator lets users make the cuts that they would choose, with a goal of finding £49 billion ($78 billion) in savings by 2014-2015. We recommend having a look.