British finance minister defends emergency budget

23rd June 2010, Comments 0 comments

Britain's finance minister George Osborne defended his deficit-slashing emergency budget on Wednesday, arguing that the previous government had left the public finances in a "massive mess".

Osborne, a key member of the government's Conservative-Liberal Democrat coalition, had unveiled an emergency package of higher taxation and spending cuts on Tuesday, amid intense concern about sky-high debt levels in Europe.

Chancellor of the Exchequer Osborne slapped a levy on banks, ramped up taxation on goods and services, froze public sector pay and cut welfare spending in an attempt to curb the public deficit.

On Wednesday, the Conservative minister said the measures were "tough but fair" and argued that not dealing with the deficit would result in far worse problems for the economy.

"The damage to the economy, the people losing their jobs, will come if we do not sort out our problems in this country, and the welfare bills have got out of control," he told breakfast television programme GMTV.

"The hole in the public finances was so great and the debts were so large, and people at home know, if you have got a debt problem, you have got to deal with it."

The remarks come amid intense pressure on coalition partners the Liberal Democrats, who campaigned earlier this year against an increase in value-added taxation (VAT), arguing that it was regressive and hit the poor the hardest.

The Liberal Democrats subsequently formed a coalition government with the Conservatives last month, ousting the previous Labour administration in a general election.

Osborne announced that VAT, levied on goods and services, will now rise to 20 percent from the current level of 17.5 percent in January 2011.

Liberal Democrat Treasury Minister Danny Alexander has defended the rise in VAT to 20 percent as "unavoidable".

Osborne's austerity budget was framed against the eurozone debt crisis and concerns that Britain's top-rated AAA credit rating might be at risk.

Ratings agency Fitch said on Tuesday that the budget measures should "materially strengthen confidence" in Britain's public finances and credit status.

And the Organisation for Economic Cooperation and Development (OECD) praised the emergency budget as a "courageous move".

"The budget announced ... by the UK Chancellor of the Exchequer is a courageous move," said OECD Secretary-General Angel Gurria in a statement issued on Tuesday.

"It provides the necessary degree of fiscal consolidation over the coming years to restore public finances to a sustainable path, while still supporting the recovery.

"The plan for a gradual reduction in the deficit over the next five years is concrete and far-reaching.

"It is appropriate that the bulk of the adjustments come from public expenditure restraint, and that the tax measures focus mostly on consumption."

© 2010 AFP

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