British budget seeks to boost flagging economy
British finance minister George Osborne launched plans on Wednesday to breathe new life into the struggling economy but was forced to tear up his optimistic forecasts for growth.
Osborne, presenting his second annual budget, said he would boost growth and jobs -- even as massive spending cuts and tax hikes risk pushing Britain into a double-dip recession, according to some analysts.
Chancellor of the Exchequer Osborne admitted that growth would be lower than expected this year and next, after a shock contraction in the fourth quarter of 2010, and was forced to revise his borrowing forecasts as a result.
However, he found enough room for a slender cut in fuel duty and also lifted the point at which workers have to pay income tax.
Osborne had already delivered savage austerity measures last year as the governing Conservative-Liberal Democrat coalition sought to slash a record deficit that was inherited from the previous Labour government.
"We have had to undertake difficult measures. But we have already asked the British people for what is needed and today we do not need to ask for more," Osborne said on Wednesday.
"So this is not a tax-raising budget. But nor can we afford a giveaway," he added, describing his measures as "fiscally neutral."
Ignoring widespread calls to reduce the size of the coalition's public spending cuts -- the deepest for decades -- Osborne told parliament: "Britain has a plan and we're sticking to it."
A total of £21 billion ($34 billion) of spending cuts are due in 2011-12, around a quarter of the savings lined up by the coalition through to 2015.
Against this backdrop, Osborne cut the 2011 economic growth forecast to 1.7 percent from 2.1 percent, blaming the impact of surging commodity prices and inflation. The major downgrade was in line with expectations.
The 2012 growth estimate was also trimmed to 2.5 percent from 2.6 percent but the economy should then pick up to expand 2.9 percent in 2013 and 2014, and 2.8 percent in 2015.
The leader of the opposition Labour party, Ed Miliband, seized on the growth downgrades, telling the House of Commons: "Growth down, last year, this year and next year. Every time he (Osborne) comes to this House, growth is downgraded.
"Taking account of all the measures, what is the Chancellor's singular achievement? To deliver a budget for growth that downgrades the growth forecasts."
Osborne meanwhile warned that weaker-than-expected economic activity would dent the battered public finances in the coming years.
He revised predicted public sector net borrowing for the current 2010-11 fiscal year, which runs to the end of March, to £146 billion from £148.5 billion previously.
But the annual borrowing forecasts for 2011-12 through to 2015-16 were all lifted.
In a boost to the private sector, Osborne cut corporation tax paid by businesses by two percentage points, after earlier announcing that he planned a reduction of one point.
In a lift for the beleaguered property market, he unveiled financial assistance for people struggling to buy their first home and said the personal annual tax allowance would be hiked from £7,475 to more than £8,105 by April 2012.
Osborne also raised the rate of tax on companies operating in the North Sea to enable lower petrol prices for motorists hit by soaring oil costs.
The government will cut fuel duty by one penny per litre in a move which took effect hours after the announcement.
The measures were welcomed by the Confederation of British Industry, a powerful business lobby group representing employers.
"This budget will help businesses grow and create jobs. The Chancellor has made clear the UK is open for business," said CBI Director-General John Cridland.
"The extra one pence cut in corporation tax will help firms increase investment. Meanwhile, significant changes to entrepreneurs' taxation will rightly focus much-needed support on businesses with growth potential."
The coalition government came to power in May 2010, with Osborne delivering a painful emergency budget and spending review in which he announced plans to save £81 billion over five years in order to slash a record public deficit.
© 2011 AFP