UK - Credit-rating downgrade is symptom of a universal spending problem

The British slide

By Nita Ghei

Moody's decision last week to downgrade Great Britain’s credit rating surprised no one, including the markets, which largely shrugged the news off. The credit-rating agency arrived late to the party, just as it did in the United States and in several of the eurozone’s distressed countries. The market is quicker to take into account the botched finances of each nation.
That’s cold comfort to Chancellor of the Exchequer George Osborne and Prime Minister David Cameron’s government, who have used the need to maintain the country’s Aaa rating to advocate for fiscal austerity.

The problem is that the talk of austerity has been exactly that: just talk. 

Her Majesty's government has continued to spend ever larger amounts, even during the Great Recession. 

• Government outlays were about $955 billion in 2009. 
• That jumped to $1.04 trillion last year, 
• and is expected to climb even higher — to $1.14 trillion by 2017. 

Whatever else might be shrinking in the United Kingdom, it isn’t the size of government — or the size of deficits.

The increase in spending has outstripped increases in revenue from the only “austerity” being practiced — tax hikes. 

The British government already pulls in a staggering 39 percent of the economy’s output. (The U.S. federal government, by comparison, collects 26 percent.) Nonetheless, the United Kingdom’s fiscal deficit is larger than that of Europe’s near-bankrupt nations.

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