Let’s be honest, in the governmental petting zoo Chancellor of the Exchequer George Osborne is the current scapegoat. Now, as an unexpected deficit heightens the risk of further austerity Osborne is receiving an even bigger barrage of criticism then usual.
Britain has been in the current recession for nine jolly months and data for July has shown a deficit of 557 million pounds for public sector finances (excluding financial sector interventions). According to the Office for National Statistics the same period last year recorded a surplus of 2.8 billion pounds.
Economists have also forecast that borrowing for the fiscal year could well exceed the 92 billion pounds planned, predicting a possible overshoot of 30 billion If the escalating deterioration of public finances is not prevented.
The Conservative-led coalition has asserted that reducing Britain’s record deficit is a top priority, but with the economy weakened demands to reign in the austerity drive have been growing.
Osborne’s economic strategy focused on lowering banks’ funding costs, making cuts to public spending, encouraging private sector recruitment, and supporting non-taxpayer financed infrastructure investment. For many, the measures he has so far implemented are failing to yield the required results.
Business leaders have been particularly vocal in condemning Osborne’s actions, decreeing that the steps accomplished ‘too little, too slowly.’
Earlier today, the Institute of Directors have published the results of a poll involving 1,277 of its members. The majority of participants felt that the measures to reduce tax, tackle business regulations and simplify employment laws sanctioned by Osborne and Prime Minister David Cameron were ‘ineffective’ and that much more could be done to boost growth.
During an interview for BBC radio IoD Chief Economist Graeme Leach laid out the action business leaders want to be taken: ‘We don’t want to see any slowdown in deficit reduction but we do want to see much more aggressive supply-side action.’
He went on to state: ‘Low confidence leads to delayed decisions, and delayed decisions further undermine economic confidence – it’s a vicious cycle. The Government’s reform agenda is pointing in broadly the right direction, but the overwhelming opinion of our members is that they are doing too little, too slowly. If the Coalition wants to break this cycle of low economic confidence, then they need to take some bold steps that will make a real difference to the cost and complexity of doing business in the UK.’
Former Cabinet Minister John Redwood was more complimentary about Osborne’s methods than others have been but still felt he needed to reassess his approach. Redwood said:
‘The Chancellor wisely changed his tax regime for oil and gas in the latest budget, following the fall-off in activity last year from higher taxes. He needs to review all taxes with a view of maximising revenues by setting competitive rates.’
In response to the deficit data the Finance Ministry has stated that ‘The government remains committed to the credible plan we have set out to deal with Britain’s debts and today’s numbers emphasise how risky it would be to deliberately increase borrowing’. Although automatic stabilisers, like a lower tax take, will still be permitted the Finance Ministry asserted that there was no scope for deficit-financed spending.
The unexpectedly high deficit has also served to reduce confidence in the coalition’s ability to keep borrowing costs under control and protect Britain’s top level credit rating. After the disappointing figures were released Labour was quick to stick the boot in. The party’s business spokesman Chuka Umunna discussed their take on the situation on Sky News: ‘What we saw was in the wake of the government’s comprehensive spending review back in 2010, confidence nosedived, but then demand and orders dried up, and that’s what so many businesses are complaining about. We need an immediate stimulus package to get demand back into the economy, to get those orders back, and then we can reduce the numbers of people out of work.’
The coalition government is aiming to slash the budget deficit from 8.2 per cent of GDP to 5.8 per cent in the 2011/12 fiscal year and the choice Osborne may soon have to make is an unenviable one. He must decide whether to miss his goal of closing the budget gap within five years or authorise even tougher austerity.
The Prime Minister has been pushing for radical growth boosting policies to be developed for an economic regeneration Bill scheduled for the autumn, but has also warned that British attempts at boosting economic growth are being eclipsed by the continuing euro-zone crisis.
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