British budget cuts: two big lessons for America
Only time will show whether severe budget cuts in Britain are too deep for that fragile economy to sustain. Even so, the political will to cut spending and the readiness to sacrifice sacred cows stand out as examples for America.
The race to a zero deficit in London is faster than in almost any other Western capital. Indeed, President Obama has warned that cutting too quickly could crash today’s struggling economies in another recession ditch.
But British Conservative Prime Minister David Cameron and his Liberal Democrat coalition partner, Nick Clegg, are willing to take the risk. They’re cutting almost 500,000 public-sector jobs and slashing spending at government agencies by an average of 19 percent. Mr. Cameron, in the driver’s seat, and Mr. Clegg, right next to him, are up on two wheels as they round a hairpin turn that leads to fiscal probity.
The next five years will show whether they can pull this off safely. But even while that question remains hanging, two big conclusions can already be reached about this British experiment and how it might apply across the Atlantic.
First, it’s clear that where there’s political will, there’s a political way – even on a subject as contentious as reducing government spending.
Even before the British parliamentary elections in May, the leaders of the three main parties all campaigned on eliminating the country’s highest peacetime deficit by the end of the next parliament. They were scared into this position by the great Greek debt debacle of the spring, which roiled the international financial markets.
The Greek tragedy helped win voter acceptance in Britain, as has a generally even-handed approach to the cuts. No one is spared – not the banks (which will see a permanent tax based on the size of their balance sheets); not middle- and upper-income families (they will lose child benefits). The pension age will rise sooner than expected, affecting everyone.
The second lesson is the strategy of the cuts themselves: a certain fairness in how they’re distributed, but with an eye toward increased spending for national priorities and competitiveness.
For instance, while the British military will drop several big pieces of hardware (Harrier jets; the Nimrod spy plane), it will invest more in cybersecurity. Transport infrastructure (rail) also gets a boost, as does education spending.
Hold a magnifying glass over the new British arithmetic, and you’re sure to find some mistakes. Assurances from London aside, the US should worry that British fighting forces will be reduced by a total of 17,000. Britain is America’s go-to ally when it comes to hot spots around the world, and having sufficient boots on the ground is critical.
But generally, America can learn from Britain’s budget politics and strategy. In this election season, Congress is utterly lacking in any bipartisan will to tackle the country’s deficits and debt. Indeed, the pressure is coming from the electorate. Will lawmakers respond?
And the British budget shows that even sacred cows, such as defense spending, can’t be exempted. Defense Secretary Robert Gates has made it his mission to cut Pentagon costs – hardware that doesn’t align with counterinsurgency needs as well as personnel expenses. He’s gotten some cuts past Congress, but he still has a long way to go.
In the US, nothing is more sacred than the entitlement programs: Social Security, Medicare, and Medicaid. They’re seemingly untouchable, and they’re hugely expensive. Instead of avoiding this debate, lawmakers must embrace it.
It’s true that, despite America’s precarious fiscal outlook, the international financial markets still favor the US. But for how long?
This December, President Obama’s bipartisan commission will deliver its report on how to reduce the national debt. Political leaders from both parties have an opportunity – in this window of relative calm provided by the financial markets – to solve this problem. As in Britain, they can work together to return the country to a more sustainable fiscal path.
And if they act sooner rather than later, they may find they can take that turn on four wheels, instead of two.