RPT-Britain to slash welfare in austerity gamble

(Repeats story issued earlier on Oct 20, no change to text)

By Sumeet Desai

LONDON, Oct 20 (BestGrowthStock) – Britain will on Wednesday take an
axe to its welfare state as part of an 80 billion-pound cut in
public spending that could seal the fate of both the economy and
the coalition government.

After months of bitter negotiations, Conservative finance
minister George Osborne will announce his spending review at
1130 GMT. Cuts of 25 percent on average are in store for most
departments outside priority areas.

Economists are split between those who say the drastic
action is needed and those who argue it will tip Britain back
into recession. Almost all agree, however, that growth will slow
and the Bank of England will have to keep monetary policy
super-loose for the foreseeable future.

Unions are already decrying the potential loss of close to a
million public sector jobs but for now, few expect the kind of
violent protests seen in other European capitals also launching
austerity drives in the face of burgeoning budget deficits.

Osborne’s goal is to bring down a record deficit of 11
percent of GDP — the highest in the G7 — to around 2 percent
in 5 years, a fiscal tightening of some 113 billion pounds ($178
billion), a quarter of which will come from tax rises.

No previous British government has tried anything as
ambitious and the National Institute of Economic and Social
Research think tank said on Wednesday it thought the government
could only push through half the planned cuts. [ID:nLDE69I2DQ]

CUTS, CUTS, CUTS

So far, the government has announced an eight percent cut in
the defence budget, less than expected and setting the scene for
bigger cuts elsewhere. It has said it will protect health,
schools and overseas aid budgets.

A government source told Reuters late on Tuesday the science
budget would escape lightly and only be cut by 9 percent, as
Osborne is determined to support areas that support long-term
growth of the economy.

Another official said welfare spending would be very hard
hit. Osborne has already pledged to reduce it by some 11 billion
pounds. Billions more are expected to be chopped on Wednesday.

The government is braced for an uproar. Officials point to
the decision earlier this month to remove child benefits for
higher earners, which has angered many traditional supporters,
as a sign of the difficult choices it faces.

Still, the latest Reuters/Ipsos MORI political monitor on
Tuesday showed 38 percent of people believe the centre-right
Conservatives have the best economic policies compared to a
quarter who preferred the opposition Labour Party’s stance.
[ID:nLDE69H1O3]

The Liberal Democrats, the junior coalition partners, have
seen their support plummet in most polls.

Much will depend on how the economy copes with the fiscal
tightening. For now, the consensus is that Britain will show
slow growth for a couple of years as the private sector picks up
the baton from a deflated public sector.

But some economists say the economy is headed for the
buffers because of the cuts. Many business and consumer
confidence measures are already waning even before the measures
begin.

Central bank governor Mervyn King painted a gloomy picture
late on Tuesday, saying it would be a long while before Britain
could recover from the 10 percent drop in output seen in the
recession. [ID:nSLAJLE6FY]

For now, Osborne says he is relying on monetary policy to
support the economy and that he is determined to press ahead
with cuts even if the outlook darkens. Only that will prevent
the kind of debt crisis that hit Greece and Ireland.

“Spending cuts are a gamble which must work. It is not the
rating agencies which the government has to fear — it’s the
electorate,” said Peter Dixon, an economist at Commerzbank.
(Editing by Andrew Roche)

RPT-Britain to slash welfare in austerity gamble