Britain set for austerity budget

22nd June 2010, Comments 0 comments

British finance minister George Osborne pledged Tuesday to balance the books within five years, a spokesman said, shortly before he was to unveil an emergency austerity budget.

The chancellor of the exchequer will announce the Conservative-Liberal Democrat coalition's budget before parliament at 12:30 p.m. (1130 GMT).

"My budget is tough but it will be fair," he said, cited by the official spokesman of Prime Minister David Cameron, whose Conservative party won May elections and formed a coalition with the third-placed Liberal Democrats.

"This is an unavoidable budget because of the mess we have to clear up. So the coalition government will take responsibility for balancing Britain's books within five years," he added.

"We are going to do this fairly, protecting children and pensioners and ensuring the richest contribute the most.

"And it means getting enterprise going, because it is business, not government, that will create the jobs of the future."

The budget would reveal a "significant" acceleration to cut Britain's enormous public deficit, the spokesman added.

The comments were released shortly before Osborne was due to unveil the budget, expected to deliver the heaviest cuts in public spending for decades along with major tax hikes in a bid to slash a huge public deficit.

Tuesday's budget takes place amid heightened tensions over soaring debt levels in the eurozone, and concerns that Britain's top-rated AAA credit rating could be at risk.

Osborne is looking to save tens of billions of pounds as state borrowing is forecast to reach 155 billion pounds (230 billion dollars, 185 billion euros), or 10.5 percent of gross domestic product (GDP), in the year to March 2011.

The public deficit had rocketed to a record-high of 156 billion pounds in the 2009/10 fiscal year which ended in March, as severe recession hit tax revenues and as the government spent billions of pounds bailing out banks.

After Cameron's coalition took power last month, it announced plans to axe 6.2 billion pounds of spending, and last week it axed or suspended projects that would have cost 11.0 billion pounds.

The government's pledge to balance the books is a reference to Britain's structural deficit -- or the level of borrowing which can only be reduced by cutting spending or raising taxes. This amounts to about 123 billion pounds.

Osborne's Conservative Party had made a key pre-election pledge to eliminate the bulk of the structural deficit within five years.

And on the eve of the budget, Deputy Prime Minister Nick Clegg had warned in a message to his Liberal Democrat supporters about the scale of the task before the coalition.

"It will be controversial. This is one of the hardest things we will ever have to do, but I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities," he said.

Osborne had meanwhile confirmed on Sunday that his emergency budget would include a levy on banks.

The chancellor was also reportedly ready to announce a freeze in welfare benefit payments.

But the opposition Labour party, ousted at the May 6 general election after 13 years in power, has warned that moving too swiftly to make cuts could endanger a fragile economic recovery.

Reports late Monday said Osborne's announcement will include a sweetener in an bid to draw some of the poison from the toughest budget in decades, with the rate at which people start paying tax rising by 1,000 pounds.

The move, which was heavily trailed in the British media, will mean that nearly 900,000 people earning less than 7,475 pounds a year will pay no tax, said the BBC.

Osborne is also expected to unveil tax increases. Media reports suggest that he will raise value-added tax (VAT) on goods and services to 20 percent from 17.5 percent, as well as capital gains tax.

© 2010 AFP

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