UK coalition to start budget deficit cuts this week

* Conservative-Lib Dem coalition to detail 6 bln stg cuts

* Coalition to outline legislative program this week

By Matt Falloon

LONDON, May 23 (BestGrowthStock) – Britain’s Conservative-Liberal
Democrat coalition government will on Monday get to work
cutting spending to reduce a record budget deficit as it seeks
to ease fears of contagion spreading from Europe’s fiscal
crisis.

The new coalition, formed after the May 6 election produced
no outright victor, will also announce its first program of
law-making this week, including political reforms and tighter
banking regulation.

Conservative Finance Minister George Osborne and his Lib
Dem deputy David Laws will on Monday announce how government
departments will share the burden of an initial 6 billion
pounds ($8.62 billion) of savings in 2010.

Government advisory bodies — known as quangos — are
expected to lose about 500 million pounds in funding and the
sprawling business ministry may have to shoulder upwards of 700
million pounds of savings.

The coalition says cutting Britain’s budget deficit, which
is running above 11 percent of gross domestic product, is its
top priority, especially since Greece’s debt crisis has rattled
investor confidence the euro zone.

“I don’t think we anticipated … quite how sharply the
economic conditions in the euro zone would have deteriorated
and the need to show that we need to get to grips with this
suddenly became much greater,” Lib Dem Deputy Prime Minister
Nick Clegg told BBC television on Sunday.

An emergency budget on June 22 will outline the scale of
spending cuts and tax rises needed to achieve the coalition’s
aim of cutting the deficit faster than the previous Labour
government, which wanted to halve borrowing over four years.

BANK TAXES

The Independent on Sunday newspaper said Treasury officials
were looking into a tax or combination of measures on banks,
possibly worth up to 8 billion pounds a year. There has also
been speculation of a rise in the rate of VAT sales tax.

The Treasury declined to comment on the report but the
Conservatives have said they would be prepared to introduce a
bank tax even before international agreement had been reached.
Policymakers from leading economies will discuss proposals for
such taxes early next month.

Even with such a hefty tax income from the financial
sector, the size of Britain’s budget deficit, forecast to hit
163 billion pounds this year, means far harsher spending cuts
are needed in years to come than those announced for 2010.

Putting those tough decisions into action and negotiating
which public services should be cut could put pressure on
relations within the coalition, which has been keen to stress
so far that it intends to serve a full five-year term.

Parts of both parties have voiced concerns about the
compatibility of the two parties in Britain’s first coalition
government since World War Two — and both sides have already
made significant concessions so far.

The Lib Dems had been opposed to spending cuts this year
for fear they could derail Britain’s frail economic recovery
from the worst recession in at least 60 years.

The Conservatives, opposed to any changes to the electoral
system, have said they are prepared to give voters the chance
to change how they elect party candidates to parliament — a
coup for the reform-hungry Lib Dems.

Political reforms, including a switch to fixed-term
parliaments and cutting the number of members of parliament,
are likely to form part of the coalition’s first legislative
program due to be announced by the Queen at the state opening
of parliament on Tuesday.

Two Sunday newspapers said they had obtained drafts of that
speech, which outlined an ambitious aim to introduce more than
20 new bills to parliament over 18 months but contained few
surprises on top of the already agreed upon coalition policy
plan [ID:nLDE64J0TW].

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(Editing by Elizabeth Fullerton)

UK coalition to start budget deficit cuts this week