UK Government Introduces Hardline Austerity Plan

LONDON (Oct. 20) -- Britain's government today set out the harshest program of spending cuts since World War II, unveiling plans to slash welfare payouts and ax almost half a million public-sector jobs in an attempt to shrink the country's rising debt.

"Today is the day when Britain steps back from the brink," George Osborne, the chancellor of the Exchequer -- the equivalent of the U.S. Treasury secretary -- told Parliament. "It is a hard road, but it leads to a better future." He added that to "back down now ... would be the road to economic ruin."

Prime Minister David Cameron's Conservative-Liberal Democrat coalition came to power in May, saying that they would take immediate and drastic action to wipe out Britain's record $245 billion deficit -- a hangover caused by the previous Labour government's overspending and the cost of bank bailouts during the recent financial crisis. Osborne's four-year savings program will see 490,000 public-sector jobs scrapped and the size of most government departments in London cut by a third. By 2015, he said, public spending will have shrunk by about $130 billion.

The savings will fall across almost all areas of government. The policing budget will fall by 4 percent each year, while the Justice Ministry will now have to trim spending by 6 percent a year. Hundreds of London-based diplomats will lose their jobs as the Foreign Office sees its budget slashed by 24 percent. And defense spending will come down 8 percent by 2014, Osborne added, but promised that investment in British forces serving in Afghanistan wouldn't be affected.

All of the cuts, he promised, would be distributed fairly across society, ensuring "those with the broadest shoulders will bear the greatest burden." Osborne explained that a temporary levy on bank balance sheets introduced in January would now be made permanent, potentially funneling billions of dollars a year into the Treasury. And even Queen Elizabeth II will share in the suffering, as her royal household budget is set to come down by 14 percent over the next four years.

However, despite Osborne's assurances, it is likely that the country's poorest and the middle class -- an overstretched group now routinely referred to as the "squeezed middle" in the U.K. media -- will experience the most pain. Access to benefits is set to be restricted in order to save some $11 billion a year. Much of that saving will come from changes to the once-universal child benefit -- under which families receive $120 a month for their first child, and an extra $80 for each extra child -- which will now be available only to people earning less than $70,000 a year.

Poor tenants living in subsidized public housing will also be expected to pay rent closer to the market rate in the private housing sector, a move Osborne said would help fund the building of new affordable homes. And the state pension age will climb to 66 by 2020 -- four years earlier than planned -- potentially saving almost $8 billion a year.

One area that won't be savaged is the often criticized but much loved National Health Service, which will be allocated more funds. It's certain that if Cameron and Co. had taken a scalpel to the state-funded medical provider, they would have seen their popularity ratings plummet.

Osborne said that his cost-cutting plan was the only way to save Britain from certain financial disaster, as the country is currently paying $68 billion a year in debt interest. "We have had to make choices, choices in the things we support," he told Parliament. "We have taken our country back from the brink of bankruptcy."

However, the opposition Labour party has argued that the cuts are being pushed through too quickly, and risk sending the country back into recession. "It's our firm belief that the rush to cut the deficit endangers the recovery and reduces the prospects for employment in the short term and for prosperity in the longer term," said Labour shadow chancellor Alan Johnson.

He also accused Osborne and Cameron -- both of who hail from aristocratic, wealthy families -- of being removed from the suffering that these savings will cause. "I don't believe that the prime minister or the chancellor sufficiently understand the worries and concerns of families up and down this country," Johnson said, "and I think those worries will have multiplied considerably as a result of his statement today."

So far, though, most ordinary Brits appear resigned to this spate of budget slashing. An anti-cuts march through London today attracted a meager 2,000 union members. That's a stark contrast to neighboring France, where this week millions of protesters have almost brought the country to a standstill over President Nicolas Sarkozy's plan to raise the retirement age from 60 to 62.

There is no guarantee, however, that Brits will stay so peaceful if their jobs continue to disappear and incomes drop further. Former Conservative Cabinet member Norman Fowler, who served in ex-Prime Minister Margaret Thatcher's government for a decade, on Tuesday predicted, "We are in for a turbulent period of demonstrations, protests and industrial action over the next couple of years."