22nd October 2010

Ted Scott on the wire: The comprehensive spending review

The Comprehensive Spending Review: What does it mean for the economy and markets?

The Comprehensive Spending Review (CSR) is the cornerstone of the government's austerity programme. The stated aim is to cut the public sector deficit from 10% of GDP to 2% by 2014/15 with the pace of the spending cuts to be spread evenly over the next five years. The size of the spending cuts amount to some £80bn and represent about 75% of the planned reduction in the deficit. The balance will come from tax increases that, in contrast to the spending cuts, are more front end loaded.

To be successful in achieving its aim of reducing the deficit by 8% over the next five years requires the deepest and most sustained fiscal consolidation since the end of the Second World War. We have known for a while about the size of the cuts and ministers have been preparing the ground since the coalition took office about how severe they will be and that everyone will be affected. In this respect, the government has been successful as the population and the media appear to have accepted the necessity of the CSR in contrast to France where there has been considerable public resistance to much less stringent reforms.

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