Britain's Osborne: deficits a test of credibility

The British government has to act decisively to whittle down its budget deficit for fear an impression sets in that it lacks political will to do so, Chancellor of the Exchequer George Osborne said on Friday.

In an interview with PBS's Charlie Rose, Osborne described the budget deficit as a key challenge and said he was determined to show international investors and businessmen that Britain will get it under control.

"I judge that the biggest risk facing the British economy is a sense out there that we had a government that was unable to deal with the budget deficit," Osborne said. "That is a major concern."

The interview was conducted in London but PBS issued a transcript in Washington.

The 39-year-old Osborne is set to detail cuts in an October spending review that are expected to slash budgets of many government departments. Earlier this week, the BBC reported that he was planning an extra 4 billion pounds ($6.2 billion) of welfare cuts on top of an 11 billion pound reduction to the annual bill already planned.

He suggested that there was no alternative to making spending reductions, given the need to demonstrate the government's commitment to credible deficit reduction.

"I want to see growth in the British economy going forward, but it has to be sustainable growth," Osborne said. "That means reassuring people that we can pay our way in the world. And it also means a private sector-led recovery."

Osborne said the former Labor administration, which had been in power for 13 years before the Conservative/Liberal Democrat government took office in May had left Britain with the largest budget deficit of any major economy in the world and said it will take years to work out of it.

In a June budget, he promised to slash spending and raise taxes as needed to lower a budget deficit that had reached 11 percent of GDP.

Asked to contrast his approach to that of the United States where lawmakers chose to apply economic stimulus programs aimed at spurring growth and so reducing deficits, Osborne said the U.S. had an advantage in that its dollar was regarded as the world's reserve currency.

That means there is ample demand for it and less risk it could be devalued, he said.

"Each country has got to make its own judgments," Osborne said, adding that the most stimulating thing that British authorities can aim for is to keep interest rates low, which he said will be best achieved by implementing a credible plan to cut deficits.