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1 Billion Pound Cutbacks for Councils

Austerity measures have been announced across Europe.

Here in the UK, local councils are to receive £1Bn in budget cuts, with large city councils showing the biggest drops in funding - but the cuts are designed so that no council receives more than a 2% reduction, so it's all relative.

The measures are part of the government's plan to reduce the gap between government income and spending by £6Bn. The deficit is currently reported to be about £150Bn, so that £6Bn isn't going to make much impact on the figures by itself, though it may cause pain to public sector workers - as the LGA is keen to emphasise. They also took the opportunity to stick the boot in on the 'quangos' - "We need nothing less than a transformation of the way the public sector works to deliver savings through a bonfire of bureaucracy, a radical scaling back of the quango state and giving power to the people who know their areas best."

There's been much talk in the press recently about how government spending has got out of control. The official figures also tend not to include PFI deals and bank bailouts. Yet much of the problem is not so much the increase in government spending, as the decrease in government income. The deficit seems to be mainly due to a sudden drop in income in 2008, around the time the banks collapsed and the economy imploded. Given that the UK's major industry at the time was the financial sector in London, this is hardly surprising.

As the economic outlook became more gloomy, people and business spent less, and the government received less income from taxes. Banks too have become more cautious and are lending less. This so-called 'death spiral' of negative feedback was perhaps most starkly obvious when people started queuing up to withdraw their money from Northern Rock, because they feared the bank would collapse - and their actions probably caused it to. An economic recovery will probably require more spending from consumers and businesses to close the gap between government outgoings and income. In the meantime, falling wages and the weakening of the pound makes the UK more attractive to companies outside the EU wanting to grab a European base to avoid the EU import taxes. Companies from India and China have been showing signs of investment and relocation, much as Japanese and Korean firms have in the past.

India, China and Indonesia were the only G20 countries whose economies grew during the recession.