English Austerity

I’m almost ashamed to admit it now, but until very recently I thought British Prime Minister David Cameron was a real softy.  Perhaps it was his overly refined Eton manners, which stood in stark contrast to his rather gruff Scottish predecessor Gordon Brown, but Cameron looked like a man with no backbone.  His speech also seemed heavy on meaningless buzz words and light on substance.  He certainly seemed an unworthy heir to the Conservative legacy of Margaret Thatcher.

Let me be the first to admit I was wrong.  Mr. Cameron is giving Mrs. Thatcher a run for the money as the biggest revolutionary to hold office in Britain in the past 30 years.

While the United States under the presidency of Barack Obama continues to post astronomical budget deficits that put the long-term stability of the country at risk, Mr. Cameron is unleashing austerity measure on Britain that would make him look like a villain in a Charles Dickens novel.  Bah, humbug!

The UK’s planned budget cuts of £81 billion ($128 billion) over four years are the equivalent of 4.5% of projected 2014-15 GDP.  These are just the cuts, mind you, not the budget itself.  The Financial Times calculates that similar cuts in the United States would be about $650 billion, equal to the projected cost of Medicare in 2015!

Here are some of the cuts of note:

• £7 billion reduction in welfare support
• 490,000 public-sector job cuts by 2014-15.
• Cutbacks to local governments of 30%
• Cutbacks to police departments of 16%
• A raising of the national pension age from 65 to 66 for men starting in 2020.
• An 8% cut in military spending

Interestingly enough, there were no cuts made to the National Health Service (Britain’s socialized healthcare provider), to education, and–perhaps most oddly–to foreign aid.  Health and schools were no doubt a bridge too far for a voting population looking at meager times ahead.  As for foreign aid, perhaps Britain believes it can substitute military hard power for the softer power of bribing foreign regimes with money that it doesn’t have.  We’ll see how well that works out…  It would appear to me that by cutting its military spending this deeply, Britain is accommodating itself to a reduced role in world affairs (though to be fair, Britain’s military would remain the most potent in Europe).

UK voters have taken all of this in stride.  Perhaps they realize that this really is the most prudent course of action.  Or perhaps they have braver politicians who are better able to articulate why budget austerity is necessary and are willing to take the political pain that comes with it.

Is it too late to annul that whole Declaration of Independence thing, revert to a Crown Colony, and have Mr. Cameron run our country too?  I say this (mostly) in jest.
Charles Lewis Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

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