Cutting Government Spending: Lessons to Learn

The GOP would do well to take a lesson from the United Kingdom Conservative Party.

Even given the vast differences between the U.S. and U.K. political systems, it is interesting how similar our electorates have become over the past decade.  Britain, after living through 13 years of rule by the left of center Labour Party, elected its first coalition since WWII between the Conservatives and the Liberal Democrats.  David Cameron, the Conservative Party leader, became Prime Minister.

Under Tony Blair and the Labour Party, government spending had increased by 10% of GDP from 37.5% to 47.5%….insert Barack Obama and the Democratic Party if you wish. Only a few months into his first year as President, David Cameron authorized massive spending cuts:

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.

Comprehensive welfare reform.  130 billion dollars cut from public sector spending.  Vast reductions to government departmental budgets.  These are the most ambitious spending cuts since Margeret Thatcher was Prime Minister in the 80s.  In addition, Chancellor George Osbourne cut corporate taxes by 4%, offering an excellant example for the GOP to follow: 

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 second-highest corporate income tax in the world.  That has to change.

The cuts aren’t perfect, but they represent an important step toward rectifying out of control left wing government spending.  Some criticism of the British budget cuts target decisions to cut the defense budget, exempt health services from cuts, and maintain higher capital gains taxes adopted in June. We’re going to need to address Social Security, Medicare, and Medicaid.  Keeping these programs exempt from budget considerations is a mistake.  These are all lessons that the GOP should be learning…and learning quickly.

Overall, the United Kingdom is on track, and hopefully the GOP can bring the United States along the same path.  Just look at the United Kingdom economy since the establishment of the cuts:

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.

Government spending is not required for economic growth.  The Left would love for you to believe that, but it’s simply not true.  The U.K.’s economy is strengthening, and experts predict that the budget deficit will be eliminated by 2015.  That’s called fiscal responsibility, and it is sorely lacking in this country.

Do I think we will accomplish reforms to this magnitude? Do I think we will actually look around and take some lessons from successful budget cut policy? I am actually a pessimist in this regard.  The reality of our political system is such that the majority party in the House of Representatives has little control over what policy is actually implemented into law.  But this example is a strong case in support of responsible fiscal management.  It offers some degree of hope that it is indeed possible to implement massive cuts, achieve economic growth, and accomplish these goals in a politically advantageous manner.

When the GOP takes full controll of our government in 2012, the U.K. blueprint is one they must look to and follow closely.  This attempt is the only significant measure of implementing spending cuts in modern Western society.  Over the next two years, our leaders will be able to see what worked and what didn’t work in the U.K..

Many citizens have said that the GOP is “still on probation,” after being voted into control of Congress.  That is absolutely the reality.  The GOP can offer the excuse that they only control 1/3 of the policy-making force in Washington, and this excuse would be valid to support some extent of inaction over the next 2 years. 

After 2012, there will be no more excuses.

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