UK stakes future on austerity plan

Recession-battered Britain learns the true cost of the global financial crisis on Wednesday, as the country’s government outlines the largest cuts to public spending since World War II – slashing benefits and public sector jobs with a five-year austerity plan aimed at clearing the nation’s debts.

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After spending billions bailing out indebted banks, and suffering a squeeze on tax revenue and a hike in welfare bills, Treasury chief George Osborne will stake the coalition government’s reputation on fixing the country’s economic ills by the next election in 2015.

In a major address to Parliament, Osborne will announce about Stg80 billion ($A130.04 billion) in spending cuts, which he claims are necessary alongside tax rises to wipe out Britain’s Stg156 billion ($A253.58 billion) deficit and reduce its huge debt.

It means as many as 500,000 public sector jobs are likely to be lost, while pay for almost all government workers has already been frozen for two years under an initial round of austerity measures announced in June.

Even the Queen has taken a share of the strain, as Osborne froze government funding for her household and staff.

The Treasury chief – seen as a possible future prime minister – has already warned government departments to prepare to cut their budgets by up to 25 per cent over four years. While the eventual cuts are likely to be much less severe, they are likely to be the sharpest in about 60 years.

About 1.2 million families will lose child benefit payments beginning in 2013, and tens of thousands more Britons are likely to see their welfare cheques trimmed or scrapped.

If the government decides to slash its winter fuel allowance, millions of retirees could lose out on subsidised heating. About 12 million people currently receive the payment.

“I wish there was another way. I wish there was an easier way. But I tell you: There is no other responsible way,” Prime Minister David Cameron told an annual rally of his Conservative Party earlier this month.

Osborne’s sweeping plans to clear Britain’s debts come despite the Conservative-led coalition government’s fragile political position.

Britain’s inconclusive national election in May, in which no single party won a majority, reflected the public’s uncertainty over how to handle the country’s debts, worth about Stg15,500 ($A25,195) for every citizen, according to some estimates.

Cameron’s Conservative Party argues that failing to tackle the deficit quickly would leave the country struggling with astronomical interest payments. At current rates of spending, the Treasury estimates, Britain would end up spending more trying to meet its interest payments than it devotes to educating its children.

The opposition Labour Party, which the government blames for running up Britain’s massive debt when it was in power, agrees that there is a need for fiscal discipline, but says that the Tories and their allies are cutting too much too soon.

Alan Johnson, Labour’s spokesman on economic issues, accused Osborne of “economic masochism”, warning that his cuts would leave Britain trapped in a cycle of low growth and high unemployment for years. Johnson advocates more tax hikes, alongside fewer and slower cuts.

Osborne’s has pointed to a statement by the International Monetary Fund – which said Britain’s economy was “on the mend” – and to support from major businesses.

Recent surveys and protests, however, suggest that many Britons are not happy with the cuts even before the details have announced. On Tuesday, hundreds of labour union members vowed to oppose the spending cuts, marching to Parliament to protest Osborne’s plans.

“We begin campaigning today, we’re unfolding the banner,” said Nick Long, a 52-year-old union representative from south London. “We will fight back.”

Norman Fowler, a Conservative minister under Margaret Thatcher and John Major, warned the cuts could herald years of “demonstrations, protests and industrial action”.

There are few signs, however, that the British public will react to austerity measures with the scale of protests seen in France and Greece.

Osborne’s cuts are expected to hit nearly every aspect of Britain’s public life, and repercussions could be felt well beyond the island nation’s borders. The BBC’s World Service – an important source of news for people across the globe – is expected to see retrenchments.

Even charities could suffer: A report out Tuesday warned that between a fifth and a quarter of charities received at least some government funding.

Only two areas of spending are being protected.

The National Health Service – the sacred cow of British politics – is being insulated from the cuts, but will make major reforms to its management.

Cameron said the overall budget for international aid will be maintained, though ministers are overhauling priorities for assistance – offering less to emerging economies, and more to unstable states.