Saturday, October 09, 2010

U.K. Cuts Middle-Class Benefits in the Face of Looming Deficit

NYT: British Leader Vows End to 'Heavy-Handed State'
NYT: In Sharp Change, Britain Will Reduce Child Benefits for the Middle Class
BBC: Your Country Needs You, Says David Cameron
Telegraph: Coalition's Cuts are a 'Strong and Credible Plan', Says IMF

In the coming weeks, the government in the United Kingdom is set to announce drastic budget cuts of approximately 25 percent in almost every UK governmental department to help alleviate the country's massive budget deficit. This amounts to a $130 billion cut in spending over the next four years. As Brits anxiously await the specifics of these budget cuts, some analysts have made bleak predictions, including the loss of 500,000 public-sector jobs and up to 1,000,000 private-sector jobs. Nevertheless, drastic measures may be necessary in the UK, where the country has a deficit of 11 percent of G.D.P., one of the highest in the world.

One cut that has become a controversial subject since its announcement on Monday is the British government's decision to stop paying a universal child subsidy for families where one partner makes over $70,000. This subsidy provides families $32 a week for one child, and $21 a week for each additional child. Once this new regulation is in place, however, 1.2 million fewer families will receive the benefit, resulting in $1.6 billion in savings. George Osborne, Chancellor of the Exchequer, announced this decision at the Conservative Party conference and suggested that the budget cuts may result in a direct attack on other benefits that have become a cornerstone of European welfare states. Despite the criticism that the government has received due to these changes, some parties offer significant support as well. For example, the International Monetary Fund recently announced its support for the proposed spending cuts, calling it "appropriately ambitious."

In the UK, $310 billion goes towards welfare spending every year, making it the government's largest portion of expenditures. Under the Labour Party, which was in power from 1997 until David Cameron's election in May 2010, public benefits available to the middle class grew. These public programs will likely see significant changes as a result of the economic downturn and the country's growing deficit problems.

Discussion Questions: Is the UK being "appropriately ambitious" by making these cuts? What are the negatives to cutting public benefits programs for middle class families?

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