23rd January
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White House

Budget cuts: Tough but fair?

Money
Budget cuts to hit nation
Wednesday, 23rd June 2010
“Tough but fair” – these were the words used by George Osborne to describe the measures set out in his first Budget as Chancellor. As expected, the budget featured several public sector spending cuts in addition to some tax rises as part of the Conservative’s effort to deal with the UK’s budget deficit. The Conservatives have forecasted that this budget will lead to the British deficit being reduced to zero within 6 years.

The announcement making all the headlines is the planned VAT increase from 17.5% to 20% - set to come into effect on the 4th of January. This announcement provoked a cacophonous reaction from both benches, but Osborne described the measure as “unavoidable” as a result of “years of debt and spending”. Osborne went on to suggest that such a measure was justifiable as it would raise over £13bn and would mean that less cuts would have to be made.

However several other cuts were still announced, including cuts to disability allowances as well as housing benefits. In addition, public sector pay as well as child benefits have both been frozen. There will be an increase in capital gains tax to 28%, but there will be a two year council tax freeze and a cut in taxes for the lowest paid.

That notwithstanding, the budget has unsurprisingly been met with strong opposition from Labour. Stand-in leader Harriet Harman described the budget today as “reckless” and suggested that the budget would put jobs at risk and hurt the poorest the hardest. Indeed, whilst the lowest paid will be left the least out of pocket by the Budget, some reports suggest that in terms of income percentage they will be hit hardest.

Of course, ever since the Coalition announced their policy of cuts and savings it was always certain that their first governmental budget would polarize opinion. The budget was greeted warmly by business leaders for taking a new direction, citing the budget as a “defining moment” for the British recovery. Conversely, trade unions echoed the Labour fears that the policies proposed would have a severe affect on jobs and even suggested it would lead to a “double dip” recession.

However divisive this budget may be, it marks a milestone in the Conservative’s new approach to the management of the British economy. Indeed, the policy of deficit reducing cuts was always going to incur the wrath of the left, regardless of the Coalition’s protestations that said cuts are “progressive” in their nature. Perhaps the main challenge facing the new government is whether the coalition will remain united as they seek to implement and legislate these changes.

One could not help but look at Nick Clegg and Danny Alexander and think they looked just a tad uncomfortable as the budget was announced. Indeed, the Lib Dems have faced criticism by both Labour and Plaid Cymru over their supports of the cuts, with both parties suggesting the cuts are far from “progressive”. Indeed, in the face of such criticism it is perhaps unsurprising that Clegg and Alexander could offer only weak nods as Osborne spoke. Bearing everything in mind, one can only wonder if the Lib Dems themselves believe as Osborne does that this budget was “tough but fair”.

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