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British Prime Minister David Cameron leaves No 10 Downing Street for Prime Minister's question time in London, Wednesday, June 26, 2013.

Frank Augstein, Associated Press - Ap

In this image taken from TV Britain's Chancellor of the Exchequer George Osborne speaks in the House of Commons in London, Wednesday June 26, 2013.

Pa Wire, Associated Press - Ap

UK Treasury makes new cuts despite weak economy

  • Article by: DANICA KIRKA
  • Associated Press
  • June 26, 2013 - 12:06 PM

LONDON — Britain's Treasury chief announced 11.5 billion pounds ($17.7 billion) in spending cuts Wednesday, including benefit cuts for some retirees and more job losses for state workers, in an attempt to make ends meet.

George Osborne outlined a bleak program for national spending, with cuts in many departments, though defense was spared the axe.

"Britain is moving out from intensive care and from rescue to recovery," Osborne declared.

He cited challenges "from abroad" such as the financial crisis in the 17-country eurozone and higher oil prices as part of the reason "this country has to continue to make savings."

Osborne had hoped that Britain could move past austerity programs by the time he released the national spending review, which sets out state spending limits for 2015-2016. In his last review, in 2010, he laid out plans to eliminate the deficit by 2015 — in time for the next election.

But the deficit has remained stubbornly high, in part because economic growth is anemic. The budget deficit was 6.3 percent of annual GDP in 2012, according to figures from the Eurostat statistics agency. That was an improvement from 2011's 7.8 percent but is still more than twice the EU limit of 3 percent and at the same level as that of Cyprus, which needed a financial rescue.

Opposition leaders immediately attacked the government's plan, arguing that Britain would not be able to revive its moribund economy with more spending cuts.

The Labour Party spokesman on economic issues, Ed Balls, noted that Moody's Investors Service this year stripped the country of its top AAA credit rating because of the government's financial troubles.

Adding a personal dig, Balls reminded Osborne that President Barack Obama accidentally got the U.K. Treasury chief's first name wrong during the recent G-8 summit, calling him Jeffrey rather than George.

"Failed tests, broken promises — your friends call you George, the president calls you Jeffrey but to everyone else you are just Bungle," Balls said, referring to a clumsy British children's television character.

Some departments, such as that dealing with local communities and justice, received cuts of 10 percent. Cuts are coming in arts, sports, and other community programs while changes were broadly outlined to keep welfare spending from getting out of control.

The Treasury chief also said welfare program would face a cap starting in April 2015, but that pensions would not be affected.

Public sector employment was forecast to continue to fall. Osborne said that half a million posts had already been trimmed in the public sector since the last spending round in 2010, with another 144,000 forecast to go by 2015. There are some 5.2 million government jobs in Britain.

"We're saving 2 billion pounds a year, with a civil service now smaller than at any time since the war," Osborne said.

Defense fared better than many departments. The massive defense budget remained steady at 24 billion pounds. Police counter-terror programs were also spared, while the intelligence services — MI5, MI6 and GCHQ — received a 3.4 percent increase in their annual budget.

Economists at the Institute of Fiscal Studies suggest the British government is optimistic in its forecasts and that the country may need until 2020 to get past the age of austerity.

Osborne said borrowing is set to be 108 billion pounds this year.

© 2014 Star Tribune