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Originally published Sunday, December 16, 2012 at 5:21 PM

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‘Fiscal cliff’? Britain has already jumped

Britain has gone over its own form of “fiscal cliff,” as the Conservative-led government began a radical experiment in austerity in 2010 by cutting public spending and boosting taxes.

The Washington Post

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the idiot tea partiers and many Republicans want to do the same here. Thankfully, we... MORE

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NEWPORT, Wales — Is this what life on the other side of the “fiscal cliff” looks like?

If President Obama and congressional Republicans fail to reach a deal in the coming weeks, Americans face a fierce wave of tax hikes and spending cuts that could threaten the U.S. economy. Yet Britain has already crashed over its own economic precipice, with the Conservative-led government unleashing a radical experiment in austerity since coming to power in 2010 that has seen public spending corralled and taxes increased on this side of the Atlantic.

Two and a half years into Britain’s budget-cutting plan, the world’s seventh-largest economy has just emerged from a double-dip recession, and economists warn that a third downturn could be on the way this winter.

One of the biggest culprits in a nation gripped by the psychology of austere times: feeble consumer spending that has slammed British “high streets” — think American main streets — and dragged on the national economy.

Consider this hard-hit Welsh city in western Britain, where the shopping district is a shadow of its former self. A litany of chain stores and mom-and-pop shops have gone bust or moved, sending the vacancy rate soaring from 15.7 percent in mid-2010 to nearly 30 percent today.

Ending binges of credit-fueled spending was one goal in Britain and other nations after the global financial crisis, which began in the United States. But in a country where consumer spending accounts for roughly 60 percent of the economy (it’s 70 percent of the U.S. economy), parts of this austerity-hit nation outside of thriving London have suffered prolonged bouts of stagnant retail sales.

The results here suggest a tough road ahead for Americans as they seek to slash the deficit, whether accelerated by the fiscal cliff or not. A persistently weak economy has depressed tax collections here, slowing months of gains from painful cuts and leading the government to repeatedly fall short of its deficit targets while triggering estimates of years of slow growth ahead.

This month, the holy grail of the plan — to begin cutting the national debt by 2016 — was pushed back by at least a year, and achieving it will now require even deeper cuts.

Other indebted European nations, including Greece and Spain, have forcibly adopted austerity to appease international lenders and financial markets, both with devastating economic effects. But no country in Europe shares a closer profile — both economic and cultural — with the United States than Britain.

Bringing with it even harsher austerity than the plan imposed here, the fiscal cliff, economists say, could damage the U.S. economy proportionately more than the battering in Britain.

But are things really as bad as most Britons seem to think?

To be sure, as the government has reduced its deficit by a quarter in just 32 months, millions here have seen a real decline in purchasing power from lost public-sector jobs and trimmed state benefits, with even the gainfully employed seeing real wages growing slower at times than the rate of inflation. But the situation in Britain is also not as grim as its poor economic growth numbers suggest.

Despite zigzagging in and out of two recessions, Britain has seen a net increase in jobs over the past two years, with growth in the private sector more than making up for cuts in the government workforce.

“Now, I know you are asking whether the plan is working,” Prime Minister David Cameron told his Conservative Party convention in October. “And here’s the truth: The damage was worse than we thought, and it’s taking longer than we hoped . . . but we are making progress.”

The government has partly blamed the bad economy on external shocks, largely the debt crisis in the eurozone just across the English Channel that has put a lid on British export growth in its largest market.

The pervious Labor government had made the British budget deficit one of the highest in the industrialized world — $240 billion, or 11 percent of gross domestic product.

The new government vowed to eliminate the structural deficit — the part stemming from government operations, or roughly 5 percent of GDP — by 2014.

To do that, it increased the national sales tax and accelerated payroll-tax hikes, but the focus was squarely on cuts.

Since the second quarter of 2010, Britain has shed more than 600,000 state jobs.

At the same time, the weaker-than-projected tax revenues in the down economy have put the government at least two years behind its budget goals, meaning years more of tough cuts to meet strict targets — assuming the economy doesn’t magically roar to life.

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