From the outbox of Meyer’s inbox:
Things are tough all over. We’ve got our economy problems. Greece has practically gone falafel up. And now it’s Britain’s turn. To close there own budget deficits the newly installed government is delivering a one-two punch of cuts and taxes. The cuts are across the board and include a three pay freeze for all government employees. The rise in taxes is really just one tax but it’s a big tax. The Value Added Tax in Britain is a tax on everything except food and children’s clothes. The revenue gathered from this tax pays for all of Britain’s social services but the current 17% isn’t cutting it anymore so they want to bump it to 20%. What would happen if we had VAT? Discuss.
BRITAIN’S PROPOSED SPENDING CUTS: THE PAIN BEGINS by Nick Assinder writing for Time Magazine
Now it’s Britain’s turn. On Tuesday, June 22, the nation joined a growing list of European nations taking drastic measures to pull themselves out of debt when Finance Minister George Osborne announced a sweeping program of cuts — and warned that it’s going to hurt. For Britons, austerity 2010-style means an immediate, unprecedented squeeze on public spending and welfare that will hit virtually every family in the country. How well it works will decide the future of both the economy and the recently elected Conservative–Liberal Democrat coalition government.
Ministers have been warning for months that the only way to tackle the U.K.’s £156 billion (about $230 billion) deficit, which they lay firmly at the feet of the previous Labour government’s alleged profligacy, is by inflicting unavoidable economic pain on every citizen for years to come. Now, with the government’s first “emergency” budget, designed to pay off the deficit within five years, Britons have been told exactly how that pain will be administered and what anesthetic will be used to numb the worst of it.
In a package of measures described by Osborne as “tough but fair” and even “progressive” — and which will be watched by other countries agonizing over whether to follow a similar path — the Finance Minister announced an annual cut of £30 billion ($45 billion) in overall public spending, with only health and international aid exempt. About 6 million public employees, including teachers, nurses and police officers, will have their pay frozen for three years. Government spending will still stand at £711 billion ($1.05 trillion) come 2015-16, but the cuts represent an overall reduction of 25% in current commitments.
The annual welfare bill of £192 billion ($285 billion) will be cut by about £11 billion ($16 billion) a year, with families earning more than £40,000 ($60,000) a year losing major benefits. The much debated child benefit handed to every mother irrespective of her income will continue to be paid, despite demands for it to be tied to earnings, but it will be frozen for three years at about £20 ($30) a week. Britons will also see reductions in housing, disability and other benefits.
But the most controversial measure, and the one that may put the recently forged alliance between the Liberal Democrats and Conservatives under severe strain, is the long-predicted rise in the Value Added Tax (VAT) from 17.5% to 20% starting in 2011, which should put an extra £13 billion ($20 billion) a year into the government’s coffers. The VAT is levied on the purchase of most goods except some essentials like food and children’s clothes; it is widely accepted to be a regressive tax that hits the poorest the hardest and has traditionally been opposed by both Labour and the Liberal Democrats.
You can read the rest of this fresh tale of woe here.
