Friday, 28 June 2013

Limited success for Osborne's 'lawnmower' cuts

By Kristian Niemietz

Most people who have had to adjust their spending behaviour after a substantial loss of income probably observed two things. Firstly, the 'lawnmower method' – cutting expenditure across the board, without any individual cut being drastic on its own – will only spread the pain to a lot of areas without making enough of a difference overall. Instead, one needs to identify several items of expenditure which are dispensable altogether, and remove them in their entirety. Cancelling an underused subscription or club membership is probably a good idea. Eating a bit less of everything is probably not.

Secondly, cutting out budgetary items but otherwise carrying on as before will also produce unnecessary pain for little gain. One needs to combine spending cuts with wider behavioural changes that make high expenses less necessary. Moving to a smaller home which requires lower heating expenses is probably a good idea. Staying in the old home, turning down the heating, and sitting in the cold, is probably not. In short, budget cuts have to be strategic, and integrated into broader structural changes.

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