March 22nd, 2011
07:33 PM GMT
One of the best bits of theater that plays out in the British parliament every year is when the Chancellor of the Exchequer (Finance Minister) stands before the House of Commons and announces the following year's Budget.
George Osborne will do this on Wednesday afternoon, less than a year after his Conservative Party came to power promising a massive five-year deficit reduction plan.
But this is not Osborne's first Budget speech. He fronted the new government's "Emergency Budget" in June last year. Following that speech and last October's spending review, the British public now know what's in store until2015: Austerity.
You would hardly know it, yet.
But the pain is coming. While last year's violent demonstrations over the rise in university fees are the most obvious sign of distress, a massive march through London on March 26 will set forth the complaints of the public sector. The promise of more than 100,000 demonstrating against cuts in jobs and social services will come just as those deep cuts start to bite across the country.
Any hopes that Osborne would listen to the Labour opposition and ease off on the cuts will be dashed Wednesday afternoon.
The government says it plans to cut the budget deficit from 10% of gross domestic product to just 1% by 2015. It notes the interest on the structural deficit is about the same as the country's entire transport budget, so think what could be afforded if the deficit and debt are slashed.
But unlike many other parties on the right, the Conservatives are also increasing taxes. The biggest hike - raising Value Added Tax (national sales tax) to 20% - started back in early January. Soon the tax on income that goes to pensions will jump, and the top tax rate will likely stay high at 50%.
There is even talk the chancellor will study a new tax on the rich who fly on private jets (seen by many as a mere gesture I might add).
Still, local governments around the country are already announcing coming cuts on services like libraries and care centers for elderly and children, the kind of cuts that upset voters, even if they don't want taxes to rise further. Some measures like taxing rich non-domiciled foreigners and cutting the amount of social welfare payments people can receive, have their supporters and critics, but they will remain.
The interesting thing is, the government says it's not cutting spending by as much as the 25-30% you read about. It's slowing the increase in spending over four years.
Deutsche Bank for one wrote in a recent note that talk of deep cuts "is simply not true. Total managed spending is actually projected by the government to rise during every year of the forecast. The cuts may therefore not be as bad as is commonly thought."
According to Ernst & Young the government has actually already seen a rebound in tax revenues. The chancellor said this weekend that on Wednesday he won't have to ask for more money or extra spending cuts than those already planned.
But the government's plans for 2011-2015 count on many factors it really can't control; economic growth at home and abroad, interest rates, inflation, employment, etc. Other governments will be watching to see if Britain, which had negative growth in the fourth quarter, can remain austere in the face of strikes and worries of another recession.
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