Facing defeat, UK government targets deficit, bank pay

By Reuters Staff
November 18, 2009

By Keith Weir and Matt Falloon
LONDON, Nov 18 (Reuters) – Britain’s Labour government promised on Wednesday to halve its huge budget deficit and curb bankers’ pay in the hope of reviving its popularity before a national election next year.

The opposition centre-right Conservatives are on course to win an election due by June, ending Labour’s grip on power since 1997. An enduring recession, a politicians’ expenses scandal and anger over the war in Afghanistan have eroded support for Prime Minister Gordon Brown’s government.

Wooing wavering voters, Labour also promised to tackle failing schools, improve care for the old and ill, and make the streets safer in a broad programme announced by Queen Elizabeth at the elaborate, annual state opening of parliament.

“We have taken the action that is necessary to cut the deficit in half over the next few years,” Brown told parliament, pointing to plans to raise taxes for top earners and increase contributions for state benefits.

Many of the proposed measures had already been flagged,
raising questions about whether any of them would change the political arithmetic that puts the Conservatives ahead by at least 10 percentage points in opinion polls.

“These things are a kind of shop window, but to be honest I don’t think many people are in the market to buy Labour anyway,” said Tom Bale, senior lecturer in politics at Sussex University.

Opposition leader David Cameron repeated his call for an election as soon as possible. “This is the shortest Queen’s speech since 1997. They have run out of money, they have run of time, they have run out of ideas,” he told parliament.
DEFICIT CUTTING
The government will enshrine in law its plans to cut the deficit in half over four years, but financial markets will have to wait until the prebudget report on Dec. 9 for more details.

The budget deficit is set to exceed 12 percent of gross domestic product this year, raising concerns on markets about the future management of public finances.

Where to target tax rises and spending cuts to reduce the deficit will be a central theme in the election. Brown says Conservative plans to cut the deficit more quickly would endanger Britain’s recovery from the longest recession on record.

“We are the only party with policies to build a long-term recovery,” Brown said, adding that economic stimhulus measures would remain in place until recovery was assured.

With Labour conscious of the consequences of high unemployment during an election campaign, Brown announced more help for young people who are out of work.

Savings achieved because unemployment has risen less
than expected will help to fund jobs or training for those who remain out of work. New university graduates will be offered internships or help in setting up their own businesses and unemployed 16 and 17 year olds will be offered more education.

Another law will allow a more powerful Financial Services Authority (FSA) watchdog to tear up bankers’ contracts if they are deemed excessive and will require financial firms to set out living wills to wind themselves down in a future crisis.

The Conservatives say they will abolish the FSA and give greater oversight powers to the Bank of England, following heavy criticism of the handling of the credit crisis when the government spent billions of pounds rescuing banks.

“We are going to press ahead with our reforms. These won’t be on the statute books for very long,” an aide to Conservative economic policy chief George Osborne told Reuters.
(Additional reporting by Adrian Croft, Robin Pomeroy and Peter Griffiths)

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