By Tash Shifrin
18 March 2010
The government has rejected calls from the European Commission for a swifter crackdown on the UK deficit, amid speculation that better than expected benefit claimant figures could give the chancellor some Budget Day leeway.
In a March 17 report on the UK economy, the EC urged the government to ‘strengthen the pace’ of action to tackle the deficit to ensure it is ‘brought below 3% of gross domestic product by 2014/15’.
But Chief Secretary to the Treasury Liam Byrne responded: ‘We think that is the wrong judgement. Our judgement is that we should halve the deficit over four years, reducing the deficit to just 4.4% by 2014/15. To go further than this would entail taking out over £25bn extra by 2014/15.’
The EC report was issued as new unemployment figures offered the government some relief ahead of the March 24 Budget. They showed that the number of people receiving Jobseeker’s Allowance fell by 32,300 to 1.59 million between January and February, the largest monthly fall since November 1997. The lower than expected figures came despite a 54,000 fall in the number of people in employment, as the numbers classed as economically inactive – mainly students – rose.
A reduced claimant count helps the Treasury as it eases pressure on the social security budget. Calculations by the Institute for Fiscal Studies have suggested that every 100,000 unemployed people account for around £500m on the welfare bill.
But Charles Davis, senior economist at the Centre for Economics and Business Research, told Public Finance that although the reduced claimant count was a ‘positive factor’, it was unlikely to give Chancellor Alistair Darling much more room to manoeuvre.
The social security saving was likely to be offset by the fact that ‘tax revenues have remained consistently fairly weak’, he said, citing very low figures for January.
Public finance figures for February, set to be published on March 18, were expected to heighten political tension, while more than 200,000 civil servants were preparing to strike on Budget day itself over cuts to their redundancy terms.
Public and Commercial Services union leader Mark Serwotka said the government must negotiate protection for the redundancy terms if renewed strike action were to be avoided.
Civil servants would not allow jobs and services to be ‘cut on the cheap’,
he said.
