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Britain Goes for Austerity, Cutting 490,000 Public-Sector Jobs

The Conservatives in Britain have announced their new budget, and it consists of massive spending cuts totaling $130 billion dollars, costing nearly half a million public-sector workers their jobs.

Seeking to free itself of crushing debt, the British government unveiled the country’s steepest public spending cuts in decades on Wednesday, sharply reducing welfare benefits, raising the retirement age earlier than planned and eliminating almost half a million public sector jobs over the next four years.

“Today is the day when Britain steps back from the brink,” George Osborne, the Chancellor of the Exchequer, as Britain’s top finance minister is known, told Parliament as he laid out an ambitious and potentially risky plan to reduce debt.

The program is a center-piece of the coalition government, which blames the country’s economic malaise on its Labour predecessor under former Prime Minister Gordon Brown. The cuts are so momentous that they could determine the coalition’s fate as Britons face politically-charged austerity after years of growing prosperity before the financial meltdown in 2008.

“It is a hard road but it leads to a better future,” Mr. Osborne said. “To back down now would be the road to economic ruin.”

Interesting that firing 490,000 workers isn’t seen as a road to economic ruin. But recent history bears that out. Austerity programs in Greece, Ireland and elsewhere in Europe have sharply lowered economic growth and done nothing to reduce budget deficits. Less revenue from taxpayers makes it impossible to catch up through spending cuts alone.

A few things stand out. First, the National Health Service will actually see an increase in funds, because Prime Minister David Cameron promised that during the election campaign. Second, Cameron is at least spreading the cuts widely, including to defense spending, which will see an 8% reduction. 42,000 of the 490,000 job losses come in the area of defense.

The final point I want to make about this is that Parliamentary government virtually assures that this budget will go into effect unchanged. Unlike the Presidential system, where the President proposes something and Congress alters it, with the Prime Minister the leader of his party in Parliament, for the most part this will get through. That’s true despite the junior partner Liberal Democrats seemingly opposed ideologically to an austerity program.

That’s a good or bad thing, depending on your perspective. But you can’t say that British voters weren’t warned. The Conservatives ran on this, and now they’re carrying it out. If it doesn’t work I imagine they’ll be held accountable. At least everyone gets the government they deserve, in that case.

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David Dayen

David Dayen