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U.K. government battles to cut deficit

Britain's Conservative Party Prime Minister David Cameron speaks at a press conference inside 10 Downing Street to mark the half-way point in the five-year term of the coalition government in London on Jan. 7, 2013.

Today, the British government administered another dose of austerity. It passed a measure through parliament to hold down increases in welfare benefits to no more than 1 percent per year.

The move coincided with a moment of reflection for Prime Minister David Cameron and his colleagues; they celebrated the passing of the halfway mark in their first term in office. The government is a coalition of two parties that have sunk their differences and joined forces to wage war on the deficit. It has been -- at times -- a stormy union.

But at this half-way stage, Prime Minister Cameron says the marriage is working.

"We said we would come together. We said we’d form a government,” said Cameron. “We said we’d tackle these big problems. We said we’d get on with it in a mature and sensible way, and that’s exactly what we’ve done. "

But they’ve fallen far short of their  goals. They’ve cut the deficit by only a quarter, the country’s lurched into two recessions, could soon slide back into a third and lose its “AAA” credit rating. And yet, some argue, the budget cuts haven’t even begun to hurt.

“The hit to people’s living standards at least from reductions in government services and reductions in welfare benefits really only starts to bite this year,” says Bob McKee of Independent Strategy, a research house.

So why the economic malaise? The government blames the eurozone debt crisis. But Simon Tilford of the Centre for European Reform says it’s the government’s fault for talking tough and denting confidence.

“The language they’ve adopted: ‘We must cut. We must rein in spending. We must accept lower living standards.’ This has unsettled both consumers and companies,” claims Tilford.

So just the prospect of budget cuts helped tip the economy into recession. Today the government easily won the parliamentary vote to cap welfare benefits.

Cameron has much more control over parliament than President Obama has over Congress, and yet Cameron is clearly struggling to adminster even a moderate dose of  austerity. The message to the U.S. seems to be: deficit-cutting is not as easy as it seems.  

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.
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We need to hear more about the economic travails of countries other than the "usual suspects" (read: Greece, Spain, Portugal, Italy, Ireland), and the U.K. (please, let's not call it "Great Britain," shall we?) is a perfect example of such.

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