Britain budget looks to kick-start growth

23rd March 2011, Comments 0 comments

Finance minister George Osborne delivers his annual budget Wednesday that promises to fuel growth of Britain's economy, struggling to recover from recession under the weight of huge spending cuts.

Chancellor of the Exchequer Osborne, a Conservative member of Britain's coalition, will unveil his 2011/12 tax and spending plans before parliament at 1230 GMT.

Osborne is presenting the event as a "budget for growth," even as his drastic austerity measures of cuts and tax hikes risk pushing Britain back into recession, according to some analysts.

"The chancellor has promised a 'pro-growth' budget likely to include a number of minor tax measures," said Capital Economics analyst Jonathan Loynes.

British newspapers said Osborne was expected to announce tax breaks for the country's lowest earners.

The salary threshold at which workers start to pay tax is set to rise by £600 (692 euros, $980) to £8,000, taking 250,000 earners out of the income tax system, according to press reports.

However this will be seen as giving with one hand and taking away with the other after Osborne hiked the rate of Britain's sales tax, or VAT, to 20 percent from 17.5 at the start of 2011.

And last month he announced that a special levy on banks -- imposed following the 2008 financial crisis -- would be raised to yield £2.5 billion this year.

Economists agree that Osborne will stick to his drastic deficit-slashing plans when he unveils his second budget.

"There's really very little scope for the chancellor to back down on his public spending cuts," Daiwa economist Hetal Mehta told AFP. "I don't think they can deviate from that too much at this stage.

"Any announcements will be fairly small in scale and even if there are a couple of surprise announcement I do not think they will be particularly costly surprises."

Reports said Osborne would unveil low-interest loans aimed at helping people buy their first home.

Following last year's general election, Osborne gave a painful emergency budget in which he announced plans to cut state spending by billions of pounds over five years in order to slash a record public deficit.

The chancellor remains on course to undershoot his official borrowing target of £148.5 billion (171 billion euros, $243 billion) for the current 2010/2011 financial year that runs to the end of March.

This despite official data published Tuesday showing that public sector net borrowing surprisingly hit a much larger-than-expected £11.8 billion in February -- the highest level on record for the month.

"The government still faces a long, hard slog in ensuring that borrowing comes down to anything approaching sustainable levels and from an economic perspective," said Investec economist Philip Shaw.

"There is no case whatsoever for a fiscal giveaway at (the) budget," he added.

The coalition, which rose to office in May 2010, is seeking to slash a record public deficit run up under the previous Labour government as a result of bank bailouts and weak tax revenues because of the recession.

Also on Wednesday, the government's independent fiscal watchdog -- the Office for Budget Responsibility (OBR) -- publishes its latest forecasts for British public borrowing and economic growth.

The OBR is widely predicted to lower its 2011 economic growth forecast to about 1.8 percent, from the prior estimate of 2.1 percent, after Britain's economy unexpectedly shrank in the final quarter of 2010.

In a further blow ahead of the budget, separate data published Tuesday showed that British annual inflation jumped to 4.4 percent in February, the highest level since October 2008.

© 2011 AFP

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