Kristian Rouz — UK's Chancellor of the Exchequer George Osbourne announced on Wednesday that Britain had exceeded its debt target for the financial year 2015/2016, with the nation's budget consequently posting a deficit for the period. However, Osborne, who intends to achieve a budget surplus by the end of this decade, signaled that more austerity measures would be implemented soon, including those aimed at cutting the cost of bureaucracy and regulation in the government sector.
There are two things in particular that concern the Exchequer in the medium-term. First, the excessive control of local authorities over state schools, which results in hundreds of millions of pounds in unnecessary losses for the UK government. Addressing the issue, Osborne put forward a 1.5 bln pound plan to free state schools from administrative surveillance by 2022, adding that the saved money could be used to extend teaching days.
"I'm going to get on with finishing the job we started five years ago, to drive up standards and set schools free from the shackles of local bureaucracy," Osborne said.
UK's home prices jumped from an average of 145,000 pounds in 2009 to 197,000 pounds currently. Meanwhile, investment in Britain's real estate is on the rise despite the prices being prohibitively high. According to data published by the London-based real estate consultancy Knight Frank, in 2015 UK real estate attracted some 15 bln pounds in investment capital; the figure is project to rise to 50 bln pounds by 2020.
Meanwhile, the Exchequer can do little to stave off the alarming tendencies, and the BoE can't act under the current circumstances. The UK's growth outlook is murky, and the Brexit referendum is only three months away, stirring financial instability in the UK. Tax revenues undershot previous forecasts, meaning the only prudent way to act for the finance ministry is to cut costs further.
The last time the UK enjoyed a surplus budget was in 2001, when fiscal revenues exceeded expenditures by some 1.7% of the UK's GDP. This year, the UK posted a budget deficit of 4% of GDP.
"This Budget looks more like a press stunt to hide George Osborne's failures than about any serious policy," the opposition's Shadow Chancellor of the Exchequer John McDonnell of the Labour Party said, blasting Osborne's intent to curb administrative regulations of education system.
The Exchequer is planning 4 bln pounds worth of expenditure cuts in the coming year; however the UK's budget is not exactly tight on cash. In November of last year, the Exchequer enjoyed a 27-bln pound contingent gain resulting from a decline in debt-servicing costs, stemming from the dynamics of the bond market.
Meanwhile, the UK's economic growth is expected to hit 2% in 2016, and 2.2% in 2017. This is below previous expectations of 2.4% and 2.5%, respectively, mainly due to volatility in stocks, bond market sluggishness, and Brexit fears. However, this is still robust compared to other advanced nations.
Osbourne notes that 3.5-4 bln pounds of budget spending cuts could allow him to reach a 0.5% GDP budget surplus by financial year 2019/2020. However, given the current pace of growth in the UK, the amount of expenditure cuts required might significantly exceed the proposed figures.
