British chancellor sees budget deficit as "great national challenge"

08:39, June 09, 2010      

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Britain's new chancellor of the exchequer George Osborne said on Tuesday that tackling its " terrible economic situation" is the "great national challenge of our generation."

Osborne outlined in his first major speech to the new House of Commons details of a major review of public spending, which he said was needed to build an economy of the future while repairing the mistakes of the past.

Osborne said: "This is the great national challenge of our generation: after years of waste, debt and irresponsibility, to get Britain to live within its means. It is a time to rethink how government spends our money.

"We didn't choose the terrible economic situation we inherited. But we can work to put it right, to deal with our debts, to set our country on a brighter economic course, and show that we are all in this together." He outlined a timetable and some of the mechanism of the review, but not the details of cuts.

"The budget on June 22 will set out the overall mandate for bringing the deficit under control.

It will set the overall envelope for spending, but it will not allocate spending between departments. That is what the spending review this autumn will address."

Osborne's announcement came only hours after one of the world's leading credit ratings agencies, Fitch's, issued a dire warning about the size of the British government's budget deficit.

Fitch's said: "The scale of the UK's fiscal challenge is formidable and warrants a strong medium-term consolidation strategy -- including a faster pace of deficit reduction than set out in the April 2010 Budget."

The April budget was the then ruling Labor party's last budget, and they subsequently lost the following general election in May.

Osborne welcomed Fitch's warning in his speech to the House of Commons as more support for his plans to cut spending. It does, however, represent the level of international concern at Britain's sovereign debt.

Osborne told the Commons that at the G20 finance ministers' summit in South Korea over the weekend, Britain was the nation with the "worst budget deficit" of any attending.

Osborne comes from the right-wing Conservative party, one half of the coalition government. His deputy, chief secretary to the treasury Danny Alexander comes from the left-of-center Liberal Democrats, and together they launched a treasury document outlining the details of the major review of public spending.

The review will be completed in the autumn, and will cover government spending from the start of the next financial year in April, 2011, to the end of the 2014/15 year.

Osborne invited the public to take part in discussions about the spending cuts, where they should fall and how deep they should be.

A treasury statement outlined that this would mean "engagement between the government and all parts of society including; the private sector, the public, voluntary/charitable organizations and experts, in order to obtain the best ideas from those most involved in and affected by public services".

The treasury said all central government departments should submit their initial plans to deliver their priorities before the parliamentary summer holiday, and that they had to "demonstrate that they meet a tough new set of criteria to deliver value for money. The criteria cover questions such as: is the activity being funded essential to the Government's priorities, does the Government need to fund the activity, and can it be provided more efficiently?"

A special committee, called a Star Chamber, would be set up chaired by the chancellor and the chief secretary to challenge every department's spending plans to ensure that they "deliver more for less."

Tax credits, social security (welfare payments) and public service pensions would all be comprehensively examined, said the treasury.

Prime Minister David Cameron gave a speech on Monday in which he said that paying the interest on the debt each year cost could rise to about 70 billion pounds (about 110 billion U.S. dollars) in five years time unless government spending was cut now.

There were dangers in delaying tackling the debt, said Cameron. "Around the world people and their government's are waking up to the dangers of not handling their debts."

He said while the British economy was not in the same dire shape as the Greek economy, the sovereign debt crisis spreading from Greece to the eurozone is a timely warning to governments of the failure to tackle debt in a credible manner.

The new government has already announced 6.25 billion pounds of cuts in the current 2010/11 budget, but the cuts that will be announced in autumn as a result of the spending review set in motion by Osborne will be far larger, and are likely to draw fierce criticism and opposition.

Reaction from the trades unions to Osborne's announcement on Tuesday was immediate.

Brendan Barber, general secretary of the Trades Union Congress, said: "The Coalition seems to wants to go much further than the election talk of efficiency savings and cuts in intrusive state activities such as ID cards.

"We will welcome the offer to engage but will press hard against cuts that threaten higher unemployment or the services on which millions of ordinary people depend."

Source: Xinhua


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