Britain unveils radical austerity plan

Britain unveiled its most radical shake-up of public finances in decades, outlining a deficit-reduction program Wednesday that will scale back the size of government, cut welfare benefits, shrink the armed forces, tax banks and raise the legal retirement age.

Almost every aspect of public services, with the notable exception of healthcare, will be affected by cuts totaling $128 billion over the next four years. Britain’s ruling Conservatives say such drastic action is necessary to get the country out from under a heavy load of public debt and erase a government budget deficit equal to nearly 12% of annual gross domestic product.

An estimated 490,000 jobs will be eliminated in the state sector, police departments will be downsized, universities will lose funding, rents will rise in public housing and some benefits for the long-term unemployed will be cut.

Even Queen Elizabeth II and the royal family are to make do with reduced government subsidies under the spending blueprint.

“Today is the day when Britain steps back from the brink, when we confront the bills from a decade of debt,” said Chancellor of the Exchequer George Osborne, the British finance secretary. “It is a hard road, but it leads to a better future.”

Osborne spoke at a raucous session of Parliament, where opposition lawmakers immediately denounced the spending plan as cutting too much too soon for an economy still struggling to shake off a debilitating downturn. The Labor Party, which was booted from power in May, accused the Conservatives of putting Britain at risk of falling back into recession.

The spending program is the centerpiece of the new government’s agenda, which has made reining in the deficit its No. 1 priority. The Conservative-led coalition has spent several months preparing Britons for a prolonged period of painful retrenchment, portraying it as their only option after years of profligacy under Labor.

The far-reaching austerity plan places Britain firmly alongside other European nations, including Ireland and Greece, that have embraced deep spending cuts as the path to financial stability and a return to economic growth.

It also puts London at odds with Washington and President Obama, who has argued for more fiscal stimulus and only moderate cutbacks among the world’s largest economies to keep consumer demand going. But Osborne insisted that his was the right recipe for Britain to maintain the confidence of global markets and to jump-start the private sector’s investing and creating jobs.

“To back down now and abandon our plans would be the road to economic ruin,” Osborne told the House of Commons, the lower house of Parliament. “It takes time to turn around the debt supertanker.”

Under the austerity plan, government departments are to shrink their budgets by an average of 19%.

Welfare spending will be reduced by about $29 billion, including a one-year limit on benefits for some long-term unemployed. Child-benefit payments will end for affluent parents. The retirement age, now 65 for men and 60 for many women, will rise to 66 for both sexes by 2020, several years earlier than originally planned. The government says that will save about $8 billion.

The budget for policing will drop by 4% a year, though spending will increase on intelligence-gathering and counter-terrorism, partly in anticipation of the Summer Olympics in London in 2012. As previously announced, Britain’s military will shed 17,000 troops and scrap aging hardware for an 8% savings.

The BBC, one of the country’s most cherished institutions, will be squeezed as well, forced to take on new responsibilities even as the annual license fee charged to all television owners, the broadcaster’s main source of revenue, will be frozen for six years.

But a few politically sensitive benefits are to remain untouched, especially some subsidies for the elderly. International aid levels will stay the same; the National Health Service, the biggest sacred cow in British politics, will see its funding increase.

And a temporary levy on banks, which many people here blame for causing the global financial crisis, is to become permanent.

Osborne strove to portray the cuts as fairly spread, despite contentions from social-service advocates and unions that poorer Britons will suffer the most.

Alan Johnson, Labor’s finance spokesman, denounced the cutbacks as ideologically driven and overly harsh.

“We do need to bring the deficit down,” Johnson said, but the Conservatives’ “reckless gamble with people’s livelihoods runs the risk of stifling the fragile recovery.”

That the spending plan represents a gamble of some sort for the Conservatives is in little doubt. As residents begin feeling the pinch and job losses mount, voters could turn against the Tories and their junior partners in the coalition government, the Liberal Democrats.

But both parties are banking on the effects of the cutbacks being felt gradually, not immediately, and hope that by the time of the next election, expected in 2015, the economy will have picked up enough steam to assuage voter anger and possibly even allow the coalition to ease some of its cost-saving measures.

“It’s going to be in stages. You won’t see overnight a closure of a school or some great service suddenly being withdrawn,” said Iain Begg, a professor at the London School of Economics. “The government has left itself room for maneuver.”

Although some scattered protests or strikes may arise, no one is expecting the kind of street unrest that has roiled France, both because of differences in political culture and because Britons have been bracing for cuts for months.

The biggest unknown, Begg and other analysts say, is whether the private sector will, as the government hopes, step in and create the jobs necessary to keep the economy growing.

henry.chu@latimes.com