PM warns cuts will be painful

7 June 2010

The prime minister has warned of “difficult decisions” to be made on pay, pensions and deficits as he prepares the country for the emergency budget on 22 June.

He revealed the UK’s economic problems are “even worse than we thought”, as he set out the country’s condition and his plans to help mend it.

He says it will require "painful" cuts to tackle the deficit, which will in turn affect "our whole way of life".

Cameron then added that figures the Labour administration had failed to disclose showed that unless action was taken immediately, the UK would be paying a "staggering" £70bn a year interest on its debt by 2015.

Currently, the government spends more on debt interest than on schools.

If cuts are not made then within five years Britain would be spending more on debt interest than on schools, climate change and transport combined. In that time, the deficit would double to £1.4 trillion, or £22,000 for every citizen.

Delays would also risk confidence in the economy, compounded by rising interest rates and falling investment, and lead to a “slide into decline”.

Although it still is not clear exactly where the financial scalpel will fall, Cameron is convinced Britain will come out of it “stronger”.

For more details, we will need to wait until the emergency budget on 22 June, but we know from plans already outlined that we can expect £6.2 billion cuts this financial year.

Blame the predecessors

Blame for the state of the country’s finances has been laid squarely with the last government: "We had a significant deficit problem way before the recession. In fact, much of the deficit is structural," says Mr Cameron.

Cameron pointed to examples of wasteful spending such as families being paid as much as £93,000 in housing benefit each year.

He says there are “eight million people economically inactive,” and added “The legacy left by the last government is terrible. The private sector has shrunk back to what it was over six years ago.”

Howard Archer, chief UK & European economist at IHS Global Insight says: “In addition to trying to get the public on its side, the government is also obviously hoping that its tough talk will impress the markets.”

“However,” he adds, “the government has to tread a very fine line through a very difficult path, as there is a real risk that the tough talk could have a major dampening impact on consumer and business confidence and behaviour even before most of the measures start to kick in, thereby weakening an already fragile recovery.”

The prime minister concluded that the new Office of Budget Responsibility – mainly responsible for independent forecasting – will ensure that "never again can this country sleepwalk into such a massive debt crisis".

It’s expected to downgrade its official growth forecast from 3% in 2011 closer to 2%. Meanwhile, the FTSE 100 declined 1.6% in its opening minutes as it contemplated a double-dip recession.

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