“Today is the day that Britain steps back from the brink” so said Britain’s Chancellor George Osborne yesterday as he presented the Coalition Governments plans to eliminate the £109 billion structural deficit during the lifetime of this Parliament.
Osborne inherited the biggest budget deficit of any leading economy. But the question is: will his plans involving £81 billion of public spending cuts and the loss of almost 500,000 public sector jobs save the country, or push it over the edge into a double dip recession?
The city, primed over recent weeks to expect the worst, received the Chancellor’s news relatively calmly. Certainly we did not see rioting on the streets at the announcement of the rise in the state pension age to 66 for men and women by 2020, saving £5 billion a year.
In total, around £18 billion of savings will come from cutting welfare costs. Local Government took the deepest of the cuts overall, The Department of Communities and Local Government faces a 51% reduction in its budget to £3.2 billion. The cut of 26% in the Local Government Grant to £24.2 billion will have shocked Local Authorities, but no doubt it’s we the public who will suffer with harsh cutbacks predicted in the level of serving provided to none essential services such as parks, leisure centres etc.
Despite the cuts, it’s not been all bad news; the Chancellor has sought to achieve a delicate balance between austerity v stimulus. As promised, Health and Schools spending were protected and the Chancellor found more cash for areas that could boost Britain’s future growth, including investment in science and confirmation that Crossrail, the £16 billion east-west new rail line in London, will proceed.
Certainly for property the effective removal of demand from the Government as a major new property occupier will be doing little to cheer the markets. However with an effective freeze on Government lease renewals for some weeks this has been anticipated and perhaps already built into market sentiment.
The issue remains: how will the rest of the world react to the austerity plans announced by the UK Government? Will the plans announced yesterday in the UK spur other Governments on to grasp the nettle? Only time will tell and in the meantime we must all take our medicine and hope that this is the end of the beginning and there will be brighter times ahead.
Based in London, Paul Danks is NAI Global’s Senior Vice President of Corporate Services working with clients across Europe, the Middle East and Africa.