To reduce the deficit, the Government intends to cut the amount it spends by at least £83bn (€98bn) by 2015 or around 14% of all public spending. There will be some tax rises but the major share of the savings will come from cuts.
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To reduce the deficit, the Government intends to cut the amount it spends by at least £83bn (€98bn) by 2015 or around 14% of all public spending. There will be some tax rises but the major share of the savings will come from cuts.
Unemployment rate (June 2010): 7.7%
GDP (bn euro – 2010): 1692.70
General Government Debt (2009 - % GDP): 68.2
Public deficit (2009 - % GDP): 11.4
Source: Eurostat
Public Employees
Public sector job losses over the next five years are estimated by the Government to be around 330,000. Given that, in recent years, public services have been outsourced to private companies at an increasing rate, the cuts will also affect the private sector where job losses are estimated to be between 600,000 and 700,000.
A 2-year pay freeze for all public sector workers earning over £21,000 per year has been imposed. For all others, an increase of £250 has been foreseen for each of the two years. Pay progression is to be paid only for public sector workers who have a “contractual progression” clause in their contract. However, a large majority of civil servants do not have this and their salaries will therefore be frozen.
There have been no overt pay cuts, but pensions are being reviewed and there is a real possibility that contributions will be increased when the pay freeze finishes – thereby cutting “take home” pay. And there is also a real risk that low paid public sector workers feeling the squeeze could decide to leave pension schemes if contributions rise, leaving them without savings for retirement.
A Recruitment embargo for the period 2010-2011 is in operation.
Cuts in social benefits
The spending review presented in October by the UK government contained £7bn of cuts to welfare and social security budgets, which are in addition to the £11bn of welfare cuts that were announced in June.
Proposal to merge six benefits into a single universal credit for working age people.
Proposal to reform unemployment benefits: from 2011, £63-a-week would be stripped from job seekers' allowance for up to three years from those who reject three consecutive job offers, with shorter suspensions for those refusing a first and second offer. Similar penalties would be applied to those who refuse to take part in unpaid community work programs.
Starting from 2013, a reformed medical assessment for many of the three million people on disability allowances is foreseen, with the government aiming to save more than 10 percent of the £7.6bn (€9bn) it currently spends annually on the program by expunging fraudulent claimants.
Child benefit, currently assigning 20£ a week to every family for a first child and 13.6£ for every subsequent child until they turn 19, is going to be abolished for parents earning more than 44,725£ per year starting from 2013. Child benefit is also frozen from April 2011 to April 2014.
Housing subsidies will be limited to low-income families to a maximum of 400£ per week.
In cash terms, the most significant reform is the switch in uprating policy for benefits and tax credit from RPI (Retail Prices Index) to CPI (Consumer Prices Index) starting from April 2011 – this will save the government £6 billion a year by 2015.
Pension reforms
Proposal to increase the pension age to 66 by 2020.
The Spending review set a precise figure of £1.8bn a year for the savings the Coalition Government seeks from reforms to public service pensions by 2014-15. It clearly indicates that contribution rates would raise, which at a time of pay freezes, rising inflation and redundancies, means a further cut in “take home” pay.
Cuts in public services, transfers and public investments
Local government will suffer with reductions of nearly 30 per cent by 2015.
The science budget is being frozen in cash terms, but in real terms will take a cut of 10 per cent. The police budget is decreased by 17 per cent. The department of justice current spending will be decreased by 23 per cent by 2014-15, with its capital spending halved. The defense budget is decreased by 25%.
The education budget will see a real terms rise (0.1 per cent in real terms), when the school population is rising faster.
Other public departments (apart Health and External Aid) will face cuts from 20% to 40%.
The spending review also requires all FE students (Further Education – FE - in the UK includes education for people over 16, usually excluding universities) aged 24 and over to pay fees for any level 3 courses (i.e. a level equivalent) and introduces Higher Education style student loans to try to deal with the disincentives that would arise from asking young adults to pay these fees upfront. The Education Maintenance Allowances, which provide means tested financial support for 16-19 year olds, will be replaced with “more targeted support” that will result in a cut of half a billion pounds.
Tax changes
VAT will be increased in January 2011 from 17.5% to 20%.
A permanent levy on banks, which is intended to encourage them to move to less risky profiles, is expected to generate around £2.5 billion of annual revenues by 2012-13. The unions consider it a pathetically small amount to demand from banks.
Tax credit income disregard is reduced from £25,000 to £10,000 from April 2011 and from £10,000 to £5,000 from April 2013.