Britain set for tough emergency budget to slash debt

22nd June 2010, Comments 0 comments

Britain will unveil an emergency budget on Tuesday that is forecast to deliver the heaviest cuts in public spending for decades along with major tax hikes in a bid to slash a huge public deficit.

Finance minister George Osborne will announce the Conservative-Liberal Democrat coalition's budget before parliament at 1130 GMT.

Chancellor of the Exchequer Osborne has already said that he will seek to "significantly accelerate" the government's measures to curb Britain's debt.

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.

"I see it as decisive action to deal with Britain's record budget deficit," Osborne told BBC television at the weekend.

"We sit here as the country in Europe with the largest budget deficit of any major economy, at a time when markets and investors and businesses are looking around the world at countries that can't control their debts.... In that sense, it's an unavoidable budget."

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 British Prime Minister David 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.

And on the eve of the budget, Deputy Prime Minister Nick Clegg 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.

Difficult fiscal medicine is expected in the emergency budget, according to IHS Global Insight economist Howard Archer.

"The past few weeks have seen the government conducting an orchestrated campaign to prepare the public for the nasty fiscal medicine that they and the UK economy has to take for an extended period to get the public finances back to health," he said.

"These are just tasters. In his emergency budget, the chancellor will ladle out a lot more fiscal medicine, which will not be easy to swallow."

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

Meanwhile, preparing millions of public sector workers for savage cuts, Cameron said it was "fair" that they should face a squeeze on pay and pensions.

"There is no way of dealing with an 11 percent budget deficit just by hitting either the rich or the welfare scrounger," he said in a weekend interview with The Times newspaper.

Osborne was 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 meanwhile 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 VAT -- a tax on goods and services -- to 20 percent from 17.5.

The chancellor is also set to raise capital gains tax -- or profits from the sale of assets such as second homes.

© 2010 AFP

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