Osborne outlines significant spending cuts

News Article - 24 May 2012
Category: Business

In the biggest spending cut since World War II, Chancellor George Osborne today outlined wide scale plans to repair the UK's public sector and reduce widespread borrowing.

The Government has - since its election in May - stressed the importance of spending cuts to the UK's long-term economic health. Mr Osborne today announced the UK's public debt interest repayments total £120m a day, or £43bn a year. The plans outlined will help reduce interest repayments by £5bn a year by 2014.

One of the most significant changes is the introduction of a permanent bank levy, which will require banks and building societies to contribute more sustainably to tax take. Public support for a levy has been considerable since the financial downturn, which many blamed on the financial sector.

Welfare payments are also set for a significant shakeup, which the Government claims will save up to £7bn. Couples with children will now need to work at least 24 hours a week between them to qualify for working tax credit.

The Government has also pledged to withdraw child benefits from families in which one or both parents are higher-rate tax payers. This will affect those earning £44,000 a year or more, with the average UK salary at approximately £25,000.

Individual Governmental departments face an average budget cut of 19 per cent over the next four years, with a more aggressive cut reserved for the Foreign Office (24 per cent), The budgets at HM Revenue and Customs (HMRC) and the Home Office will fall by 15 per cent and 6 per cent respectively.

The Department of Business, Innovation and Skills (BIS), responsible for a wide range of business regulation and support services, will lose 7.1 per cent of its £21.2bn budget on an annual basis. Administration costs will be slashed by £400m, with the science budget frozen. The Train to Gain programme, along with 24 quangos, will be axed.

Labour have criticised the spending cuts, arguing they go too far too quickly. Yet the only alternative is to raise taxes, something that would be considerably opposed considering the current economic climate. Left-leaning think tank Compass believes tax system reform would negate the need to reduce borrowing.

With such significant spending cuts being introduced over the coming years, businesses must operate with care. There will inevitably be unpredictable effects on all markets - particularly those involved heavily with the public sector - making it essential that firms protect profit margins until the economy achieves stability and the long-term effects of the spending cuts are patent.

Visit the Access blog to leave your comments on what you think the Government spending cuts mean to business.

Article keywords: Government Spending Review, Government spending cuts, Chancellor George Osborne, public debt interest repayments, permanent bank levy, welfare payments, Foreign Office cuts, HM Revenue and Customs (HMRC) cuts, Home Office cuts, The Department of Business, Innovation and Skills, BIS, Train to Gain programme

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