The program of cuts to be made in the British budget over the years to the next election due in 2015 was outlined by Finance Minister George Osborne to Parliament on Oct. 20. The program envisages the elimination of the structural deficit by 2015 and the axing of just under half a million jobs in the public sector. In nominal terms British government expenditure will remain much the same at the end of the period as it does now, but allowing for inflation the program envisages substantial cuts in real terms. Public-sector wages will be frozen for two years and public-sector workers will be expected to contribute increased sums toward their pensions.
The health service and overseas aid have been exempted from cuts. Education has only suffered a relatively minor reduction and extra funds have been provided for a pupil premium for children from disadvantaged backgrounds. Cuts in defense expenditure have also been limited, not least because of the war in Afghanistan. Pensioners have been largely protected from cuts, but the age at which the meager British pension is paid will be increased for men and women to 66 from 2020. Some major infrastructure projects have also been spared. As a result of these decisions other departments have had to bear more swinging cuts. In particular the welfare budget is to be reduced significantly although most of the cuts are being applied in stages.
The main tax rises — namely an increase in value added tax from 17.5 percent to 20 percent from January 2011 and confirmation of the 50 percent tax rate on the highest incomes proposed by the previous government — were announced in June. But there will be a further tax on banking and families on higher incomes paying tax at the higher rate of 40 percent will cease to qualify for child benefit and the level at which the higher rate is payable will be lowered.