Upon taking office, Chancellor of the Exchequer George Osborne set a target to reduce the UK's deficit to the point that, in the financial year 2015â€“16, the total public debt would be falling as a fraction of GDP, set up the Office of Budget Responsibility, and commissioned a government-wide spending review, to conclude in autumn 2010, to set limits on departmental spending until 2014â€“15. He outlined Â£6.2bn in cuts to take effect before the autumn spending review: "We simply cannot afford to increase public debt at the rate of Â£3bn each week." A Financial Times editorial agreed. In an open letter to the chancellor, however, the respected FT commentator Martin Wolf wrote: "I have been fascinatedâ€”if appalledâ€”by the pre-Keynesian approach you and the prime minister have taken to the UK's fiscal challenges. What Keynes called "the Treasury view"â€”that fiscal policy has no effect on activity, even in a deep recessionâ€”is alive and well in Downing Street." Comparing Coalition austerity measures with the Opposition's, Wolf commented that the "big shift from Labour . . . is the cuts in welfare benefits."
Leaked Treasury documents the next month revealed that Osborne anticipated his tighter spending would lead to 1.3 million jobs lost over the course of the parliament. Osborne has termed those who object to his policy "deficit-deniers".
In September, the IMF described Osborne's deficit reduction plans as "essential", though revised its growth estimate down, and dozens of leading British CEO's publicly declared their support in a high-profile letter. Others were openly hostile to Osborne's plans, notably David Blanchflower and Martin Wolf. It was also reported in September that the quarterly UK trade deficit for Aprilâ€“June 2010 was the largest since annual records began in 1946. "July's dreadful UK trade figures cast further doubt over the ability of the external sector to drive the recovery once the boost from government and consumer spending fades," commented Vicky Redwood of Capital Economics.
George Osborne, presented the Government's Spending Review on 20 October, which fixed spending budgets for each government department up to 2014â€“15. Before and after becoming chancellor, Osborne had alleged that the UK was on "the verge of bankruptcy". When he maintained the stance to justify the Spending Review, Martin Wolf took issue: "The chancellor presents the hypothesis of looming national 'bankruptcy'. If so, the UK must have been bankrupt for much of the past two centuries." A fortnight after his Review presentation, the Treasury Select Committee also accused the chancellor of using inflammatory language to justify the large public spending cuts.
More bad news was to follow as it was reported that UK exports had fallen at a record pace in the fourth quarter of 2010, highlighting the fact that Britain had not escaped a plunge in global trade. Vicky Redwood remarked: "Until the UK's export sector starts to perk up, any recovery in the overall economy seems unlikely." The economy also posted a contraction of 0.5 percent for the final quarter of 2010. Hetal Mehta from Dalwa Capitol described the negative growth as "a horrendous figure. An absolute disaster for the economy. . . . It seems that the economy is incredibly vulnerable. And with the fiscal tightening yet to fully bite, we will have to brace ourselves for a bumpy ride." Osborne said that although the figures were disappointing, there was strong performances and growth from sections of the economy less affected by the weather, such as manufacturing. He also declared that the poor figures and bad weather would not affect implementation of his austerity measures and budget deficit reduction, and that he would not be "blown off course".