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Fallout: The Financial Crisis

Brits divided on where budget should be cut

Stephen Beard Sep 16, 2010
Fallout: The Financial Crisis

Brits divided on where budget should be cut

Stephen Beard Sep 16, 2010


Kai Ryssdal: Henry Paulson had some words of warning about America’s public finances earlier this week. The former Treasury Secretary said that if the United States doesn’t get its budget deficit under control, it’s not going to be a superpower much longer. The spending cuts that would help trim the deficit when, or perhaps if, they come, could be painful.

Britain hasn’t been a superpower for a good long while now but proposed budget cuts there have already led to protests even before the government has released any of the details.

From London, Marketplace’s Stephen Beard reports.

Dog barking

Stephen Beard: On this bleak housing project in North London, many of the older residents live in fear, but not because of violent crime. Their main worry now: The public spending cuts.

Morane Roberts: I think there’s an undercurrent of fear amongst people at the moment who are vulnerable, on low income, on benefits. Even among the disabled. I’m disabled, and I don’t feel safe anymore.

Fifty-seven-year-old Morane Roberts is crippled with arthritis and needs a wheelchair to get around. She has asthma, diabetes and failing eyesight. The government pays her rent and a living allowance worth around $180 a week. But for how much longer?

Roberts: If they take me off income support then I will lose my housing benefit if I can’t take a job. So it is a constant worry, absolutely constant worry.

Here in the Houses of Parliament, the government says it will not remove benefits from the most needy. But the finance chief George Osborne says he must cut the deficit, and he says that will mean taking the axe to Britain’s bloated welfare system.

George Osborne: What I’m saying is we’re going to reform the out-of-work benefit system so there is a very strong incentive for people who can work to get work. I tell you, people who think it’s a lifestyle choice to just sit on out-of-work benefits — that lifestyle choice is going to come to an end.

Benefits are not the only target for cuts. Most other budgets except for health and overseas aid will shrink, perhaps by as much as a quarter. Defense spending — the third highest in the world behind the U.S. and China — will certainly take a hit. But it’s welfare that seems to be in for the savaging.

Mark Littlewood is head of the free market think-tank the Institute of Economic Affairs. He says welfare should be a prime candidate for cutting.

Mark Littlewood: It is preposterous that one-third of U.K. households are reliant on state handouts for more than half their annual income.

And he says it is equally ludicrous that two and a half million people — more than 8 percent of the labor force — receive benefits, because they are deemed too ill or disabled to work.

Littlewood: I don’t know what incredible plague has hit the United Kingdom that seems to have gone completely unreported. These are unfathomably high numbers. So I think there needs to be a real assault on welfarism.

But that assault is meeting stiff resistance.

Megaphone speaker: We represent more than 300,000 government sector workers. Our members deliver absolutely key services to all areas of the general public.

At the annual gathering of the U.K.’s main labor unions this week, some leaders called for national strikes against the cuts. They fear big job losses among their members, most of whom work in the public sector. And they argue that budget cuts risk tipping the country back into recession.

But Andrew Hilton of the CSFI think tank says the U.K. has little choice but to cut — and to the bone.

Andrew Hilton: The danger is that if you don’t convince the markets that you’re serious about cutting the deficit that those same markets will stop buying government securities and your interest rates will go up. Then business gets choked off and you have the recession that you were trying to avoid in the first place.

Fortunately for the government, most Brits seem to agree. Two-thirds in a recent poll said that the public sector must shrink. But the polls carry a less comforting message for the government. While a majority supports the cuts in principle, there’s little agreement about what should actually be cut in practice. And a lot of opposition to radical changes in the benefit system.

In London, this is Stephen Beard for Marketplace.

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