UK should press on with austerity plans, says OECD

LONDON (Reuters) - The Organisation for Economic Cooperation and Development said on Tuesday that Britain should continue to cut its budget deficit after May’s national election, and might need to rethink plans to shield healthcare and schools spending.

Workers walk through the City of London March 19, 2014. REUTERS/Neil Hall

With May 7 shaping up to be one of the closest and most unpredictable elections in modern British history, all main parties have promised to maintain spending on schools and health. But the Paris-based think tank said this might impose unacceptably high cuts in other areas.

“(Britain should) continue to pursue the medium-term fiscal consolidation path ... and ensure consolidation efforts are fair,” the OECD said in a report.

The opposition Labour party plans to balance the government’s books, excluding investment spending, within the next parliament. The ruling Conservative Party says it intends to balance the budget completely and return a small surplus.

The OECD cited research suggesting that protecting areas such as health and education from spending cuts would imply average spending cuts elsewhere, in real terms, of almost 40 percent between the financial years 2010-11 and 2019-20.

“Hence, the composition of fiscal adjustment should be reviewed to ease pressure on public services that have already contributed to consolidation,” the OECD report said.

Other think tanks have disagreed with the austere approach of the current government.

Earlier this month, a review of the government’s record by the National Institute of Social and Economic Research concluded that austerity had been an unnecessary risk that had caused significant damage to the economy.

The OECD predicted Britain’s economy would grow 2.6 percent this year, slightly above the 2.4 percent forecast by the government’s independent fiscal watchdog, the Office for Budget Responsibility.

But the OECD said Britain needed more private-sector infrastructure spending to deliver the rise in productivity that was necessary to make the economic recovery sustainable.

Reporting by Andy Bruce; Editing by Kevin Liffey