Cutting Government Spending: Lessons to Learn

The GOP would do well to learn from the actions of the United Kingdom Conservative Party.

Even considering the vast differences between our political systems, it is interesting to note the similarities that have formed between the American and British electorate over the past decade.  In 2010, the United Kingdom elected its first coalition government since WWII, ousting the left of center– sometimes socialist–Labour Party from power after a 13 year rule.  The Conservative Party leads the parliamentary coalition with the Liberal Democratic Party.  David Cameron, Conservative Party leader, serves as the Prime Minister.

Government spending under Tony Blair and Gordon Brown over the past 13 years amounted to an increase from 37.4% of GDP to 47.5% of GDP…..insert Barack Obama and the Democratic Party if you wish.  In light of this excess, David Cameron enacted the most ambitious and substantive spending cuts since Thatcher in the 80s:

British Chancellor of the Exchequer George Osborne unveiled a series of major austerity cuts on October 20 aimed at eliminating Britain’s structural budget deficit by 2015, which currently stands at 11.4 percent of GDP.[1] The Conservative-led coalition government in London plans to cut a total of £81 billion ($130 billion) from public spending over the next four years, as well as 490,000 public sector jobs.

British government departments will lose on average around 19 percent of their budgets, though the National Health Service and International Development have been ringfenced and Education has been largely spared with a 3.6 percent cut. Welfare spending is to be reduced by a further £7 billion in addition to the £11 billion in welfare cuts outlined in an emergency budget in June as part of a comprehensive welfare reform package spearheaded by Work and Pensions Secretary Iain Duncan Smith.

Osbourne also enacted a cut to corporate tax rates, reducing overall cororpate taxes by 4%:

Reducing budget deficits is far more difficult without the revenues that flow from a strong economy. Thus, Osborne’s proposal to cut the corporate income tax rate from 28 percent to 24 percent is right on target and offers a good model for the U.S., which has a debilitating second-highest corporate income tax rate in the industrialized world.

We have the 2nd highest corporate tax rate in the industrialized world.  That needs to end immediately.

Granted, the cuts are not perfect.  Criticism of British austerity measures includes the decisions to cut defense spending, to exempt health services from budget cuts, and to extend higher capital gains taxes adopted in June.  We need to address Social Security, Medicare, and Medicaid. Ignoring the problems with these programs is a huge mistake.

Overall, the United Kingdom is on track with comprehensive welfare reform, massive cuts to public spending, and significant cuts to government departments across the board.  The results of the cuts speak for themselves:

British Prime Minister David Cameron’s once-in-a-generation budget gamble is paying off for now as the economy’s unexpected strength eases investors’ qualms over the risk of a renewed recession.Gross domestic product grew 0.8 percent in the third quarter, twice as fast as analysts forecast, the Office for National Statistics said yesterday. Less than two hours later, Standard & Poor’s said the prime minister’s spending cuts had safeguarded Britain’s top credit rating, which it said is no longer in danger of being downgraded.

The timing of the cuts by Cameron is more fortuitous than those of Margaret Thatcher. Her first chancellor of the exchequer, Geoffrey Howe, announced his austerity measures in March 1981, when the U.K. was still mired in recession. By contrast, Cameron’s economy has just posted the two strongest consecutive quarters of growth since 2000.

The Left would love for you to believe that public spending is necessary for economic growth, but it is simply not true.  The United Kingdom has slashed public spending, their economy has prospered, and projections estimate that their national deficit will be wiped out by 2015.  The GOP needs to take notes and start learning these lessons quickly.

Do I think the GOP will enact these changes immediately? No, I don’t.  The reality is that controlling 1/3 of Washington policymakers doesn’t correlate with instant policy success.  Gaining dominance in the House is nice, but it will not resort in substantive change in government spending.  Granted, it is likely that we are to see some slight spending cuts, but it is unlikely that comprehensive budgetary action will be taken in a way that completely satisfies conservatives.

This example is important because it serves as a remarkably significant case study into the beneficial impacts of fiscal responsibility.  It is the only significant cost cutting measure in Western society within recent memory.  It is proof that in today’s political landscape, spending cuts can be implemented in a politically viable manner and result in economic prosperity.

There will be no excuses in 2012.  The GOP will take control of Washington, and the blueprint for budget cuts is already on the table….



Interested in more national news? We've got you covered! See More National News
Previous Article
Next Article

Trending on The Hayride

No trending posts were found.