UPDATE 6-Britain slashes spending, raises retirement age

* UK to raise retirement age to 66

* UK to cut welfare by extra 7 billion sterling a year

* Health, schools, overseas aid protected

* Osborne raises rhetoric on banks

(Adds reference to bank levy)

By Sumeet Desai

LONDON, Oct 20 (BestGrowthStock) – Britain will cut half a million
jobs, lift the retirement age and slash welfare as part of an
unprecedented cost-cutting drive announced on Wednesday which
will test the strength of the economy and the government.

The long-awaited spending review confirmed 80 billion pounds
of cuts, sent unions into a fury and turned up the heat on the
Liberal Democrats, the junior coalition partners who campaigned
against such sharp fiscal tightening before the May election.

The jury remains out on whether the economy — just
recovering from the worst recession since World War Two — can
survive the squeeze which will cut growth by around half a
percent each year. Analysts expect the Bank of England to keep
monetary policy super-loose for the foreseeable future.

Nor is it clear whether the cuts — aimed at bringing down a
record budget deficit of 11 percent of GDP — can actually be
achieved. More of the burden has been shifted to the notoriously
hard-to-cut welfare bill — an extra 7 billion pounds on top of
the 11 billion pounds cuts already announced.

Conservative finance minister George Osborne said that was
the best way and would mean that government departments outside
protected areas like health and international aid would only see
their budgets shrink by, on average, 19 percent, not the 25
percent announced in his budget.

“Tackling this budget deficit is unavoidable. The decisions
about how we do it are not. There are choices. And today we make
them,” the 39-year-old who took office in May told parliament.

He said the state pension age for men and women will rise to
66 by 2020 and that 490,000 public sector jobs were likely to
disappear over the next four years.

Conscious of public anger against banks widely blamed for
the economic crisis, Osborne also said the financial sector will
have to pay its fair share and legislation on a bank levy
announced earlier this year will be published on Thursday.

“Our aim will be to extract the maximum sustainable tax
revenues from financial services,” he said.


Austerity drives across Europe have unleashed a wave of
sometimes violent protests. In France, a million people have hit
the streets to protest at the retirement age being raised to 62.

Unions in Portugal — where a minority government is
struggling to calm investors by getting an austerity budget
through parliament — have called a general strike for Nov. 24
and Spain’s government too has faced down protests to seek
budget cuts. [ID:nLDE69J0MW] [ID:nLDE69J0EZ]

“We should look … to the kind of resistance being
mobilised by the French trade unions, which enjoys overwhelming
public support, as an example how to repel austerity cuts,” said
Bob Crow, head of the RMT rail union.

So far, British voters appear to be reconciled to the need
for economies. 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 with a
quarter who preferred the opposition Labour Party’s stance.

But voters have yet to see the practical impact of the cuts,
whether that means longer waiting times at hospitals, fewer
police or less regular rubbish collections — alongside hikes in
national and local taxes.

“The average department will see a 19 percent reduction,”
said BNP Paribas economist Alan Clarke. “The consensus forecasts
imply these will feel like a paper cut — we believe reductions
of this magnitude will feel more like an amputation.”

Opinion polls suggest the LibDems, the left-leaning junior
coalition partners, are already in trouble. The coalition’s key
message is that the cuts are fair but the Institute of Fiscal
Studies has already branded the spending review “regressive” —
that is to say it will hit the poor hardest.

Markets took the review in their stride and credit rating
agency Fitch said it confirmed Britain’s AAA credit status.

But analysts say much will now depend on the strength of the
recovery. Osborne is banking on a private sector recovery to
make up for the cutbacks in the public sector.

“The Chancellor is making some rather heroic assumptions.
Households may continue to save and pay down debt rather than
spend, businesses may remain reluctant to invest and export
performance could suffer from a lacklustre global recovery,”
said Andrew Smith, chief economist at KPMG.

“With indicators already suggesting that the economy is
losing momentum and confidence likely to be damaged by just the
announcement of cuts and job losses, further monetary easing may
well be necessary to compensate for the fiscal tightening now in
the pipeline.”


For graphics on UK economy, please click on


For Reuters/IPSOS Mori – UK voting intentions poll


For Insider interview with UK Treasury’s Danny Alexander


For other stories on the budget [ID:nLDE6720PZ]


(Editing by Mike Peacock/Ruth Pitchford)

UPDATE 6-Britain slashes spending, raises retirement age