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U.K. faces sharpest spending cuts since WWII

Britain will cut half a million jobs, sharply reduce welfare payments and raise the retirement age as part of an unprecedented cost-cutting drive.
Image: Britain's Finance Minister George Osborne announces the UK government's spending plans at parliament in London
British Finance Minister George Osborne, second left, is flanked by Prime Minister David Cameron, left, Treasury Secretary Danny Alexander and Deputy Prime Minister Nick Clegg, right, on Wednesday.Reuters Tv / Reuters
/ Source: news services

Britain will cut half a million jobs, sharply reduce welfare payments and raise the retirement age as part of an unprecedented cost-cutting drive that will test the strength of both the economy and the ruling coalition.

Treasury chief George Osborne on Wednesday announced the country's largest cuts to public spending since World War II as part of a five-year austerity plan.

Osborne confirmed he had ordered 83 billion pounds ($130 billion) in spending cuts through 2015, which he claims are necessary along with tax increases to wipe out a spending deficit that reached 156 billion pounds last year.

As many as 500,000 public sector jobs will be lost and dozens of scheduled government programs halted. He said that even Queen Elizabeth II would take a hit, cutting her royal household budget by 14 percent over four years under the plans.

"It is a hard road, but it leads to a better future," Osborne told lawmakers in a long-anticipated statement to outline the coalition government's long-term economic plans. "Tackling this budget deficit is unavoidable."

After spending billions bailing out indebted banks, and suffering a squeeze on tax revenue and a hike in welfare bills, he said it would take "time to turn around the debt supertanker."

Osborne said that a temporary levy on bank balance sheets being introduced in January will be made permanent, potentially raising billions of dollars.

"We will extract the maximum sustainable taxes from the banking system," he said.

Osborne told lawmakers that cuts would fall in almost all areas of government spending.

The policing budget will fall by 4 percent each year, while the Justice Ministry must cut its budget by 6 percent per year.

About 1.2 million families will lose child benefit payments beginning in 2013.

But Osborne explained spending on tackling terrorism would be maintained to help Britain guard against al-Qaida and dissident Irish republicans, and to ensure the safety of the 2012 London summer Olympic Games.

Union anger
However, Britain will meet a U.N. target to spend 0.7 percent of gross domestic product on overseas aid by 2013 despite budget constraints.

"Britons can hold their heads up high and say even in these difficult times we will honor the promise we made to some of the poorest people in the world," Osborne said.

Unions reacted angrily but public protest in Britain in Britain has so far been muted including blockades of fuel depots.

Osborne said that the state pension age for men and women will rise to 66 by 2020. "Raising the state pension age is what many countries are now doing, and will by the end of the next parliament save over 5 billion pounds ($7.8 billion) in a year."

French protesters are resisting a rise in their retirement age to 62 and British rail union leader Bob Crow urged Britons to look "to the kind of resistance being mobilized by the French trade unions ... as an example of how to repel austerity cuts."

Norman Fowler, a Conservative minister during the premierships of Margaret Thatcher and John Major, warned the cuts could herald years of "demonstrations, protests and industrial action."

On Tuesday, hundreds of labor union members vowed to oppose Osborne's plans, marching to Parliament in a noisy rally.

No previous British government has tried anything as ambitious and the National Institute of Economic and Social Research think tank said on Wednesday it thought the government could only push through half the planned cuts.

Slow growth? Economists are split between those who say the drastic action is needed and those who argue it will tip Britain back into recession. Almost all agree, however, that growth will slow. Many business and consumer confidence measures are already waning even before the measures begin.

Britain's inconclusive national election in May, in which no single party won a majority, reflected the public's uncertainty over how to handle the country's debts, worth about 15,500 pounds ($25,000) for every citizen, according to some estimates.

The latest Reuters/Ipsos MORI political monitor on Tuesday showed 38 percent of people believe the center-right Conservatives have the best economic policies compared to a quarter who preferred the opposition Labour Party's stance.

The Liberal Democrats, the Conservatives' coalition partners, have seen their support plummet in most polls as they have become party to policies they did not support before May's election.

Osborne's announcement came a day after the government revealed an eight percent cut in the defense budget .

Britain will lose thousands of troops, reduce its ability to fight complex missions like the wars in Iraq and Afghanistan and delay a program to upgrade its nuclear defenses, Prime Minister David Cameron said Tuesday.

Outlining the first defense review since 1998 — intended both to sweep away strategies crafted before the Sept. 11, 2001 attacks on the U.S. and to help clear the country's crippling national debt — Cameron said 17,000 troops, a fleet of jets and an aging aircraft carrier would all be sacrificed.