100,000+ Protest in London against Budget Cuts; Growth Expectations Fall Short; UK Standard of Living to Decline; US vs. UK Deficit Reduction Plans

By some estimates, as many as a quarter million people took to the streets in London protesting budget cuts by British Prime Minister David Cameron. The protesters held signs "Defend Our Public Services".

Those signs should have read "I Want to Raise Your Taxes".

As with every public union protest everywhere, the rally in London has nothing to do with defending public services and everything to do with "Save My Sorry Ass".

Thus, it's no surprise that Cameron's budget plans have not gone over very well with the 300,000 public workers who will lose their jobs under his austerity package.

Moreover, Prime Minister Cameron and Chancellor George Osborne are sticking with plans to balance the budget by 2015 even though recent growth expectations have fallen far short of the mark.

Tens of thousands march in London to protest budget cuts

The International Business Times reports Tens of thousands march in London to protest budget cuts

Violence has broken out on the streets of central London, England has tens of thousands of people have demonstrated to express their opposition to drastic spending cuts by the British government.

Organizers claim that more than a quarter of a million people have appeared at the march, far more than expected.

It is believed to be the largest union-organized event in Britain in more than two decades years; and the biggest overall public march in the nation since the invasion of Iraq in March 2003.

The Conservative-Liberal Democrat coalition led by Prime Minister David Cameron plans spending cuts of about $131-billion over the next five years, including slashing about 300,000 public sector jobs.

Protesters marched from Victoria Embankment to Hyde Park, where Brendan Barber, the general secretary of the Trades Union Congress (TUC), which organized the march, spoke.

Many protesters held up banners which read: "Don't Break Britain", "No to Cuts" and "Defend Our Public Services",

"The noise in Whitehall was deafening as thousands of protesters banged drums, blew whistles and shouted anti-cut slogans, slowly making their way towards Trafalgar Square,” a BBC reporter said.

Interest on National Debt is Part of the Undisclosed State of Affairs

Chancellor Osborne is not exactly being 100% forthright about the UK's fiscal state even if they can balance the budget by 2015, something I highly doubt.

Please consider Britain's leaders should come clean on the true depth of the fiscal crisis

The UK's fiscal retrenchment, we are told, is being conducted at an "extraordinarily ambitious pace". Last week's annual Budget statement pledged to "eliminate the structural deficit by 2014/15".

George Osborne told the House of Commons that "Britain has a plan and is sticking to it". The Chancellor won't be cowed by claims his efforts to get the UK back on the fiscal straight and narrow will do more harm than good. He is right, of course – but only up to a point.

The Labour party's most senior figures, in defiance of their education and intelligence, keep claiming that Osborne's actions are "driven by ideology, rather than necessity". This is absurd. Anyone who argues that rapidly addressing the fiscal catastrophe Labour left behind is anything other than absolutely crucial either knows nothing about global bond markets, or is so blindly ambitious, so determined to close their eyes to the facts, as to be unfit for public office.

Having said that, Osborne is also ignoring the facts – if to a slightly lesser degree. Because the UK's fiscal retrenchment won't be over by 2015 – when the deficit, on last week's numbers, falls roughly to zero. That won't be the end of our budgetary problems. It won't even be the beginning of the end. It will merely be, if we're lucky, the end of the beginning.

In 2009, the UK spent £31bn – around 6pc of total tax receipts – on debt interest payments. That's money down the drain. By 2015, we won't have reached, in Churchill's words, some "broad sunlit upland". After four more years of deficits, debt services costs, according to last week's Budget, will by then be £67bn a year – or almost 10pc of total tax receipts. These shocking numbers are also likely to be under-estimates, given the UK's massive "off-balance-sheet" liabilities and the Treasury's benign assumption of future gilt rates.

The lack of true fiscal retrenchment, together with rising inflation and its impact on welfare payments, means that the Office for Budget Responsibility now estimates debt service costs will be £4.7bn higher during the current fiscal year than Osborne forecast during his last budget. That's equal to more than a penny on income tax. Over the next five years, on last week's numbers, total debt service costs will now be some £18bn higher than before.

Why aren't Osborne and Co. explaining these catastrophic realities and their impact on our medium-term ability to maintain our public services, using them to rally support for austerity measures that are long overdue? Why aren't such stark facts thrown back into the face of those who claim that the Tories' retrenchment plans are "driven by ideology rather than necessity"? The answer is fear and a lack of respect. Fear that the British public would be critical of such candour. And a lack of respect for their intelligence.

Budget Estimate Falls Short

Inquiring minds note Billions added to 2011 budget after growth falls short of the forecasts expectations

Even as he proclaimed a Budget for Growth, George Osborne admitted that the economy would expand more slowly this year than he had hoped.

The Chancellor was also forced to set out plans to borrow £45.6 billion more than planned over the five years starting next month.

The office blamed the gloomier forecasts on the economy shrinking in the final three months of last year and higher-than-expected inflation.

Overall, the Government will have to borrow £45.6 billion more than expected between 2011-12 and 2015-16.

Despite steady reductions in the annual government deficit, the national debt – the total stock of outstanding borrowing – will continue to rise, reaching £1.36 trillion by 2015-16.

The interest Britain pays on that debt will also rise.

The OBR said that debt interest will be £48.6 billion in 2011-12, £4.7 billion higher than its last forecast. By 2015-16, the Government will be paying £66.8 billion on debt interest, more than the budget for the Department of Education.

Standard of living to fall for two years

The Telegraph helps explain the state of affairs with this comic on Standard of Living.



Bright Side of Things

I seriously doubt Cameron can balance the budget in 4 years. However, being the ever-optimist, I feel obliged point out the bright side of things:

• Over the long haul, the fewer the government workers the better.
• The bigger the miss in budget expectations, the more public workers will have to be fired to balance the budget.

The pertinent question is "Will Prime Minister Cameron lose his nerve?" On that unfortunately, I am not so optimistic.

UK vs. US in Budget Balancing

Assuming government does not give into demands, it's a sign of success when hundreds of thousands of public workers protest budget cuts.

Measured by protests alone, the British appear to be making some sort of effort to rein in the deficit. Hats off to the British.

Unfortunately, there is little success in the US except at the state level.

On this side of the Atlantic, we are stuck with Republicans and Democrats who will not cut defense, Democrats who will not cut entitlements, and neither party willing to do anything but bicker on how to cut anything more than $20 billion out of a massive $1.6 trillion deficit.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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