Britain's government unveiled the harshest spending cuts for decades on Wednesday, slashing budgets
by around a fifth and taking the axe to the country's comprehensive welfare system.
Finance minister George Osborne said nearly half a million public sector jobs would go as a result of
the austerity measures, and the age at which state pensions are paid to men and women would rise to 66
by 2020.
Osborne insisted that the 83-billion-pound (130-billion-dollar, 95-billion-euro) package -- watched around
Europe by governments with similar deficit worries -- marked "the day that Britain steps back from the
brink."
"This coalition government faced the worst economic inheritance in modern history," he added. "A
stronger Britain starts here."
Prime Minister David Cameron's Conservative-Liberal Democrat coalition came to power in May saying it
had to take drastic action to eliminate Britain's record 154.7-billion-pound deficit -- a legacy of the
previous Labour government.
The opposition, unions and some economists say the cuts are a gamble that could plunge the world's
sixth largest economy economy back into recession.
Osborne confirmed the government would cut 490,000 public sector jobs over four years -- from a total of
around six million -- adding that the job losses were "unavoidable when the country has run out of
money".
Government departments are facing average cuts of 19 percent over four years except health and
overseas aid, which are ring-fenced. They are lower than the expected 25 percent.
The Foreign Office will have 24 percent slashed from its budget, police spending will fall by four percent
each year and the Home Office and Ministry of Justice will each fall by six percent a year.
Some of the biggest cuts are being made in welfare, which accounts for around a third of government
spending. Osborne unveiled savings of seven billion pounds a year.
He confirmed child benefit will be cut for many higher earners, while raising the state pension age is
expected to save over five billion pounds a year. Public sector workers will also have to pay more into
their state pensions.

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The minister, officially known as the Chancellor of the Exchequer, said the cuts were the "greatest reform
to the welfare state for a generation".
Queen Elizabeth II will also feel the pinch, with royal household spending falling by 14 percent in 2012-
2013 and the queen agreeing to a one-year suspension of goverment payments under the so-called "civil
list."
Ed Miliband, the leader of the opposition Labour party, said the cuts could harm the economy.
The government is "taking the biggest gamble in a generation with growth, with people's jobs and
people's livelihoods," he said shortly before Osborne's announcement.
Unions lined up to lambast the cuts, which have sparked a series of protests in Britain including
demonstrations by thousands of people in London on Tuesday.
"This is not a spending review -- it's a massacre," said Derek Simpson, the joint leader of Unite, Britain
and Ireland's biggest union.
Dave Prentis, general secretary of UNISON, the largest public sector workers' union, said the
"ideologically driven" cuts were "poisoning the country's chances of recovery."
But business leaders welcomed the spending review -- which the International Monetary Fund also
endorsed last month in a boost to the coalition government.
"The chancellor has got the strategic direction of this spending review right," said Richard Lambert,
director general of the Confederation of British Industry.
The coalition started the cuts process Tuesday, announcing that it would shrink the country's armed
forces, scrap key assets including an aircraft carrier and reduce the defence budget by eight percent.
Among other cuts announced on Wednesday by Osborne, the BBC will take responsibility for funding the
World Service, which was previously covered by the Foreign Office.
The spending review was unveiled as official data showed British public sector overspending widened in
September to 16.2 billion pounds, a record monthly high.
The pound was down against the euro after Osborne's announcement at 88.10 pence to one euro, but
was rising against the dollar at 1.580 dollars to one pound.

Austerity: A Virtue That Could Have Us Paying Twice

European governments, including France, Germany and Great Britain, are all looking at austerity
measures to help battle the current financial crisis. It might seem like common sense to tighten a
country's belt in hard economic times, but one expert warns that the U.S. shouldn't follow suit.

Brown University political economist Mark Blyth believes that Britain's use of austerity is a dangerous idea
that will ultimately lead to reducing the economy overall. If the United States government tries it, he tells
NPR's Guy Raz, the same people who paid for the bailouts are going to pay for austerity as well.

Several countries are hoping that the strategy, which applies spending cuts to reduce deficits, will help
pay the massive increase in public debt caused by the financial crisis.
Putting the austerity policy into effect is seen as a wise move by many of the G-20 countries. The G-20
has even backed Great Britain's recent plan to trim their huge budget deficit by enforcing massive
spending cuts. Good for the U.K. if it works, but Blyth cautions it can't work for everyone.

What If Everyone Stopped Spending?

Blyth, who is originally from Dundee, Scotland, stars in a new animated video that takes a skeptical look
at the plan. He sees the world as a series of balance sheets.

"Whether you're a single parent, a corporate treasurer or the United States, you have a balance sheet,"
he says. "You have assets, you have liabilities. And those assets have value."

Homeowners and banks alike used their mortgages as leverage during the housing bubble — they took
on more debt according to the value of their assets. But when the bubble burst, both were left in the red.

"When the assets suddenly lose value, as they did in 2008, and everybody's balance sheet is then
underwater," Blyth says, "you have more liabilities than assets. And that creates a particular problem in
terms of the way that we're experiencing this recession."

"If every household decides not to spend, you have no spending," Blyth explains. "If every country tries to
clean its balance sheet at once, then you end up basically reducing the economy overall."

Take the U.K. for example, he says, which leads the trend in austerity politics. In debt and worried about
the country's credibility in the financial markets, Britain aims to drastically reduce government spending.

"Now, if every other country is continuing to spend and continuing to grow, you can have 'growth-friendly
consolidation,' as it's called. If, on the other hand, everyone does this [reduces spending] at once, it's just
the same as every household not spending," Blyth says.

"You end up with a shrinkage of the overall economy for no net gain."

It's The Public Who Will Pay — Again

That's not stopping several governments from introducing austerity measures, in part, Blyth says,
because the notion "has a wonderful ring of virtue about it. Austerity, the pain after the party. We all went
out and gave ourselves mortgages we couldn't afford, we're drowning in debt and consumption."
The risk in the U.S., Blyth says, is that the public who paid for bailouts will wind up paying for austerity as
well.

"I actually have a great deal of sympathy with the Tea Party," he says, "and it goes like this:

"They understand that their mortgage didn't get a bailout, whereas some big banks' mortgage-derivative
portfolio got a bailout, and they think that's unfair. It also means that that debt is accumulating and they're
going to have to pay for this at some point. Well, isn't it then really unfair to double-tax these people by
having an asymmetric distribution in terms of who pays for the debt? Because if you cut government
services, it's exactly the people who consume Medicare, Medicaid, teacher's salaries — it's these things
which will be hurt."

Many in the Tea Party actually do call for austerity measures, and that's where Blyth parts ways. "To me,
that's one of the greatest puzzles at the moment. I find it very difficult to understand how that link is
drawn." But then, the American debate is full of contradictions.

"The argument is that we need to cut taxes," Blyth says. But if we cut taxes to stimulate the economy, that
makes the deficit worse. But we can't raise taxes, either — that's the third rail of politics. "Well, then, how
do you expect to consolidate the deficit?"

"There are many contradictions in these arguments," says Blyth, "and they're born of a sense of
frustration out of what I think is the intuitive understanding people have that something deeply unfair is
going on.

Spending Review 2010: George

Osborne wields the axe
Chancellor George Osborne has unveiled the biggest UK spending cuts for decades, with
welfare, councils and police budgets all hit.

The pension age will rise sooner than expected, some incapacity benefits will be time limited
and other money clawed back through changes to tax credits and housing benefit.

A new bank levy will also be brought in - with full details due on Thursday.

Mr Osborne said the four year cuts were guided by fairness, reform and growth.

Continue reading the main story

 The Spending Review: Making It Clear
 Clegg on the offensive over cuts
 Flanders: How pain will be shared
 Making sense of the figures
 Key points at-a-glance
But shadow chancellor Alan Johnson, for Labour, called the review a "reckless gamble with
people's livelihoods" which risked "stifling the fragile recovery" - a message echoed by the SNP,
despite smaller than expected cuts in Scotland.

Mr Osborne ended his hour-long Commons statement by claiming the 19% average cuts to
departmental budgets were less severe than expected. This is thanks to an extra £7bn in
savings from the welfare budget and a £3.5bn increase in public sector employee pension
contributions.

'Frontline cuts'
The chancellor claimed it meant his savings were less than the 20% cuts Labour had planned
ahead of the general election.

BBC Economics Editor Stephanie Flanders said that, at first glance, "the cuts to the welfare
benefit are regressive, in the most basic sense of costing families in the lower half of the income
distribution more".

Continue reading the main story

KEY MEASURES

 £81bn cut from public spending over four years

 19% average departmental cuts - less than the 25% expected
 £7bn extra welfare cuts, including changes to incapacity, housing benefit and tax credits
 £3.5bn increase in public sector pension employee contributions
 Rise in state pension age brought forward
 7% cut for local councils from April next year
 Permanent bank levy
 Rail fares to rise 3% above inflation from 2012

 Johnson attacks 'reckless' cuts

 Welsh reaction: 'better than feared'
 Scottish reaction: 'lower than expected'
 NI reaction: Cuts worse than feared
 Your views on the cuts
Local councils are also in the firing line, with the amount of money they receive from
government cut by 7.1% from April.

The Local Government Association said the move would "hit councils and the residents they
serve very hard and will inevitably lead to cuts at the frontline".

Outlining the £81bn cuts package, Mr Osborne vowed to restore "sanity to our public finances
and stability to our economy".

He told MPs: "Today is the day when Britain steps back from the brink, when we confront the
bills from a decade of debt.

"It is a hard road, but it leads to a better future."

The main new welfare savings come from withdrawing Employment and Support Allowance, the
replacement for incapacity benefit, for some categories of claimant after one year, raising £2bn.

Universal benefits for pensioners will be retained as budgeted for by the previous government
and the temporary increase in the cold weather payment will be made permanent.

But a planned rise in the state pension age for men and women to 66 will start in 2020, six years
earlier than planned.

In other measures, rail fares will be allowed to increase by 3% above RPI inflation from 2012,
higher education spending will be cut by 40%, flood defences by 15% and sport England and
UK Sport cut by 30%.

Heated negotiations
Up to 500,000 public sector jobs could go by 2014-15 as a result of the cuts programme,
according to the Office for Budgetary Responsibility.

Continue reading the main story

Spending Review documents

PDF downloadSpending Review[1.96MB]

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 Download the reader here

 Documents hosted by Direct.gov.uk
Mr Osborne has not set out in detail where the jobs will go but he admitted there will be some
redundancies in the public sector, which he said were unavoidable when the country had run
out of money.
 Government departments facing major cuts to their budgets include the Home Office, on 6%,
including a 20% cut in government funding for police over four years, the Foreign Office, facing
24% cuts, and the Cabinet Office, which will see its budget slashed by 35%.

The justice department is facing cuts of 6%, with 3,000 fewer prison places over four years.

Winners include the Department for International Development, which will see its budget rise to
£11.5bn over the next four years, reaching 0.7% of national income in 2013.

Continue reading the main story

The chancellor's big surprise announcement is that the state pension age will
rise for both men and women to 66 ”
Nick RobinsonBBC political editor

 Read Nick Robinson's analysis

 Stephanie Flanders: All in it together?
 Mark Easton: Impact on women
 Robert Peston: Sack lessons for government
The science budget will be ringfenced and the increase for the NHS over the whole spending
period has been confirmed as 0.4%, or 0.1% a year.

The schools budget will rise from £35bn to £39bn and, overall, the Department for Education will
be required to find resource savings of just 1% a year.

Each government department will next month publish a business plan setting out reform plans
for the next four years.

The government will also deliver £6bn of Whitehall savings - double the £3bn promised earlier,
said the chancellor.

He also confirmed that the budget for new social housing would be cut by 60% over four years,
and rents for new tenants would be brought closer to private sector rates, with the money raised
to go towards building new affordable homes.

Campaign groups reacted angrily to the move, with the National Housing Federation calling it "a
devastating blow to the millions of low income families currently stuck on housing waiting lists".

The Spending Review is the culmination of months of heated negotiations with ministers over
their departmental budgets and comes a day after the Ministry of Defence and the BBC learned
their financial fate.

Tough action
 The MoD is facing cuts of 8% - less than most other departments but enough to mean 42,000
service personnel and civil servants will lose their jobs over the next five years and high-profile
equipment such as Harrier jump jets, the Ark Royal aircraft carrier and Nimrod spy planes will
be scrapped.

The BBC has been told it must freeze the licence fee for six years and take over the cost of the
World Service, currently funded by the Foreign Office, and the Welsh language TV channel
S4C. This adds up to an estimated 16% cut in the BBC's budget in real terms.

The chancellor insists tough action on spending is needed to stave off a debt crisis - and that
the private sector will create new jobs to fill the void.

Continue reading the main story

A special BBC News season examining the approaching cuts to public sector spending

 The Spending Review: Making It Clear

Labour would also have had to make major cuts if they had won the general election, but the
party insists Mr Osborne's plans were too aggressive and risked tipping the country into a
"double dip" recession.

During raucous Commons exchanges, shadow chancellor Alan Johnson accused Tory
backbenchers of cheering "the deepest cuts to public spending in living memory".

He claimed that for some on the government benches cuts were an "ideological objective" and
"what they had come into politics for".