Austerity Remains Key to Britain’s Economic Plan

The additional £11.5 billion, or $23 billion, in planned savings announced Wednesday will not come into force until 2015, the year when Britain is due to elect its next government. But by announcing the curbs well ahead of time, George Osborne, the chancellor of the Exchequer, drew battle lines for that election, placing welfare and public-spending restraint at the heart of the program of the Conservative Party, which leads Britain’s coalition government.

Though the British economy has only recently emerged from recession and growth remains feeble, Mr. Osborne indicated that there would be no let up on austerity any time soon. Speaking in Parliament, he announced curbs on automatic pay increases for millions of public-sector workers like teachers and civil servants.

But he did promise to shift significant resources to the kind of infrastructure projects that could give the economy a much-needed jolt. Details of the program were to be announced Thursday.

On welfare, Mr. Osborne took a familiar, tough, line and outlined measures to force most unemployed people to visit job centers every week, instead of every two weeks, and to ensure that those who lose their jobs will have to look for work for seven days before being eligible for benefits.

Those who do not speak English will be obliged to learn the language if they want unemployment payments, Mr. Osborne said, and there will be an overall cap on the total amount the government spends on welfare, excluding state retirement pensions.

The new package of cuts illustrates how much longer it is taking to repair Britain’s shaky public finances than Mr. Osborne once predicted.

Labour, the main opposition party, blames the government for the poor economic growth that has blown Mr. Osborne’s fiscal plans off course, and has called for a change of strategy.

The British economy, which is heavily reliant on financial services, is still recovering from the after-effects of a crash that required expensive bank bailouts and led to a credit crunch. And while Britain is outside the euro zone, its exports have suffered from the continuing downturn in the currency union.

But Mr. Osborne has sought to turn economic misfortune to political advantage by challenging the opposition to spell out whether it would match his spending plans or borrow to make up the shortfall.

In recent weeks, Labour has accepted that it will not be able to reverse all the cuts outlined by the government, and Wednesday’s announcement will increase the pressure on the party to provide more detail of its own program.

While the political consensus in Europe is shifting to a new focus on the need to spur growth, Mr. Osborne appears confident that voters still accept the need for austerity to bring public finances under control.

“The significance of today’s announcement is mainly to reinforce the U.K.’s political commitment to fiscal consolidation,” Michael Saunders wrote in a note for Citi Research, predicting that the Conservatives and their Liberal Democrat coalition allies will write the spending plans announced Wednesday into their election manifestos.

“The greater clarity over the coalition’s plans is likely to prompt Labour to be clearer over their post-election fiscal plans (at least for the first year), with the emphasis probably on tax hikes rather than spending cuts,” Mr. Saunders wrote.

As well as being chancellor, Mr. Osborne is one of the Conservative Party’s chief election strategists and his announcement appeared engineered to capitalize on the Labour Party’s perceived political weaknesses. In one aside in Parliament, he described the opposition as the “welfare party.”

In opinion polls, Labour generally scores lower than the Conservatives for economic competence and the ability to control the country’s huge bill for social security benefits.

On Wednesday, Mr. Osborne sought to reassure voters over policy areas in which the Conservatives score lower, for example by adhering to the government’s policy of largely protecting spending on schools and the health service. In Britain, voters tend to trust the Conservatives less than Labour to defend education and health care, which is free at the point of delivery.

Labour’s spokesman on economic issues, Ed Balls, said Mr. Osborne’s economic strategy had been a failure.

“If the chancellor continues with his failing economic plan, then it will fall to the next Labour government to turn the economy round and to take the tough decisions to get the deficit down in a fair way,” Mr. Balls told lawmakers.

Article source: http://www.nytimes.com/2013/06/27/world/europe/austerity-remains-key-to-britains-economic-plan.html?partner=rss&emc=rss

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