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| Osborne |
The Office for Budget Responsibility predicts annual growth in 2011 of 1.7 percent, down from the 2.1 percent forecast in November, Osborne said. The chancellor said he will stick to his deficit-reduction plan as he announced the revised forecasts in his budget speech in the House of Commons in London today.
Osborne also announced a 2 percentage-point cut in company tax this year and said that making the top 50 percent income-tax rate for higher earners permanent would do lasting damage to the economy.
“Britain has a plan and we’re sticking to it,” Osborne told lawmakers. “Today’s budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future,” he said.
Government borrowing to fund the deficit this fiscal year will be a “below target” 146 billion pounds ($237 billion), Osborne said. The government will then borrow 122 billion pounds in 2011-12, compared with a prior forecast of 117 billion pounds. Borrowing will fall to 101 billion pounds in 2012-13 compared with the previous 91 billion-pound forecast, and to 70 billion pounds in 2013-14, previously set at 60 billion pounds.
Help Families
The budget is intended to rebalance the economy and help families, Osborne said, as accelerating inflation, rising unemployment and the threat of higher interest rates put pressure on voters. The main opposition Labour Party has opened up a lead of as much as 11 percentage points over Prime Minister David Cameron’s Conservatives as the coalition government implements the biggest public-spending squeeze since World War II to eliminate the bulk of the deficit by 2015.
The pound extended losses against the dollar after Osborne’s growth estimate. Sterling slid as much as 0.8 percent to $1.6231 and traded at $1.6235 as of 12:48 p.m. in London.
The OBR also predicts gross domestic product will expand 2.5 percent in 2012, 2.9 percent in 2013 and 2014, and 2.8 percent in 2015, Osborne said.
“This is not a tax-raising budget, but nor can we afford a giveaway,” Osborne said. “In an age when businesses and capital and people can increasingly move anywhere, high tax rates can do real damage. That’s true for high corporate taxes. It’s true for high personal tax rates too.”
Corporate Tax
Company tax will be cut starting in April by more than the previously planned 1 point, Osborne said. The tax will then fall by 1 percentage point in each of the following three years, taking the corporate tax rate to 23 percent.
Osborne said the bank-levy rate next year will be adjusted to “offset” the effect of the cut in corporation tax.
The budget deficit unexpectedly widened in February as government revenue fell, the Office for National Statistics said yesterday, underlining the pressure on Osborne to stick to his fiscal tightening plan.
Consumer confidence stayed close to the lowest since March 2009 last month as Britons became more pessimistic about the sustainability of the economic recovery, a report by GfK NOP Ltd. showed.
Implementation of the fiscal program, with plans to slash more than 300,000 public-sector jobs over the next four years, begins fully next month, after the economy contracted in the fourth quarter and unemployment rose to 8 percent.
U.K. inflation accelerated more than economists forecast in February to the fastest pace in more than two years, the ONS said yesterday, adding pressure on the Bank of England to increase its benchmark interest rate. Consumer prices rose 4.4 percent from a year earlier after a 4 percent increase in January.
Sources: http://www.businessweek.com
