Connect to share and comment
Britain will stick firmly to a barrage of austerity measures, finance minister George Osborne insisted Wednesday in a budget that also slashed economic growth forecasts, while offering plans to boost the weak economy as the eurozone crisis reignites.
Chancellor of the Exchequer Osborne, who is facing calls from within his own Conservative party to reduce deep cuts to state spending in a bid to fuel growth, told parliament that Britain "must hold to the right track."
"We are slowly but surely fixing our country's economic problems," Osborne said, as he unveiled a series of measure aimed at boosting growth, including far-reaching infrastructure projects, while insisting that Britain was set to escape a new recession.
"We have now cut the (inherited) deficit, not by a quarter but by a third," the chancellor said as he outlined his tax and spending plans for 2013-14.
"Despite the progress we have made there is much more to do and today I am going to level with people... It is taking longer than anyone hoped but we must hold to the right track."
Osborne was referring to his so-called Plan A -- backed by Prime Minister David Cameron -- to drive down a record budget deficit inherited from the previous Labour administration in 2010.
Osborne's insistence on driving down state borrowing comes despite the chancellor announcing that the government was halving its economic growth forecast for 2013.
Gross domestic product (GDP) was expected to grow by just 0.6 percent this year compared with a previous forecast of 1.2 percent, according to estimates issued by the Office for Budget Responsibility (OBR) on Wednesday.
Economic growth guidance for 2014 was also cut to 1.8 percent from the previous estimate of 2.0 percent that was given in December.
The OBR meanwhile hiked its forecasts for government borrowing, stating that it would stand at £108 billion ($164 billion, 126 billion euros) in the year to April 2014 from a previous estimate of £99.3 billion.
Osborne said that the problems in eurozone member Cyprus, where savers are threatened with helping to fund an international bailout, "are further evidence that the crisis is not over and the situation remains very worrying".
"Another bout of economic storms in the eurozone would hit Britain's economic fortunes hard. Forty percent of all we export... (is) to the eurozone."
Britain is a member of the European Union but not the single currency bloc.
Sterling's reaction was muted to the budget. The entire contents were leaked to London's Evening Standard newspaper shortly before Osborne began speaking, while media obtained other information in the days preceding it.
"As expected, the key message from the UK Budget is that the government is sticking doggedly to its austerity plans, regardless of the weakness in the economy," said Vicky Redwood, chief UK economist at the Capital Economics consultancy.
"Indeed, we see little reason after this budget to alter our forecast of GDP growth this year of just 0.2 percent," she added.
The chancellor on Wednesday said that Britain was on course to avoid sinking into its third recession since the 2008 global financial crisis, despite its economy contracting by 0.3 percent in the final three months of 2012.
And in a boost to the construction industry, he added that infrastructure plans would be backed by £3.0 billion a year from 2015-2016 -- to ensure that the "economic arteries of every part of this country" could benefit.
Meanwhile the level at which workers would begin to pay income tax was set to rise to £10,000 from next year.
The opposition Labour party was in no mood to applaud these advances, however, while tens of thousands of civil servants were Wednesday holding a 24-hour strike in a row over pay and other working conditions.
"Under this government, the bad news doesn't stop," Labour leader Ed Miliband told MPs in his response to the budget.
"Wait for tomorrow, the chancellor says, and I will be vindicated. But with this chancellor, tomorrow never comes... it's a downgraded budget from a downgraded chancellor."
Moody's cut Britain's cherished triple-A rating last month.
Also on Wednesday, the government refrained from altering the Bank of England's inflation target, despite concerns that GDP would be a more sensible measure, but Osborne pledged greater transparency from the BoE in its future economic outlook reports.
On the eve of the budget meanwhile, Prime Minister David Cameron's Downing Street office said some government departments would be made to cut their budgets to save £2.5 billion over the next two years, while the money saved between now and 2015 -- the time of the next general election -- would be used on infrastructure spending.
The decision is at odds with Business Secretary Vince Cable, who has called on the government to consider borrowing more to stimulate economic growth.
Cable, a leading member of the Liberal Democrats which shares power with the Conservatives, said that the danger of slow growth may now be more damaging than the loss of confidence through increased borrowing.