UK Chancellor Alistair Darling pledges to cut borrowing, raise taxes for the better off and scrap duties on purchases of houses worth less than £250,000 in a budget report aimed at shoring up support among Labour voters ahead of a general election.
REUTERS - Britain's Labour government set the stage on Wednesday for a looming election with a budget that promised a 2.5 billion pounds ($3.75 billion) package to boost growth, higher taxes for the well-off and lower borrowing than predicted only three months ago.
Given a record deficit has spooked markets and threatened the country's debt rating, big giveaways were off the agenda but finance minister Alistair Darling still found some concessions like cutting house purchase duty for first-time buyers and laid claim to an economic recovery he said his Conservative opponents would crush.
"The recovery has begun, unemployment is falling and borrowing is better than expected. The choice before the country now is whether to support those whose policies will suffocate our recovery," Darling told parliament.
After 13 years out of power, the Conservatives remain ahead in opinion polls but their lead has shrunk markedly in recent weeks.
Most polls now point to a hung parliament where no party has a majority -- a nightmare scenario for markets who fear it could leave a government without the clout to make the unpopular spending cuts needed to bring down record public debt.
Labour has said it would halve the deficit in four years but fiscal tightening would only start next year as the recovery remains too fragile. The Conservatives said that is too late and they would act this year.
"They are just going to carry on spending, carry on borrowing and carry on failing. The biggest risk to our recovery is five more years of this prime minister," opposition leader David Cameron responded, jabbing his finger at Gordon Brown. "We need a credible plan to deal with Britain's record debts, starting now."
After Darling's address, bookmakers were still predicting that this will have been his last budget speech and Conservative finance spokesman George Osborne will be making the next one.
"Although the budget seems unlikely to harm Labour's election chances it is equally unlikely to enhance them," said William Hill's spokesman Graham Sharpe.
Targeting the rich
As well as moving to lower borrowing, Darling also found some measures to target the better off, likely to play well with Labour's core vote in the run-up to an expected May 6 election.
He said he would scrap duty on house purchases of less than 250,000 pounds for first-time buyers but pay for that with a one percentage point rise in duty to 5 percent for houses worth more than 1 million pounds.
"Those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax," Darling said.
That prompted cheers from his centre-left Labour party colleagues and comes on the heels of a new 50 percent tax rate for high earners and a one-off tax on bankers' bonuses that Darling said would raise 2 billion pounds, nearly four times expectations.
He also froze inheritance tax thresholds for four years and promised to push the idea of a global levy on banks at international meetings in Washington next month. Partially state-owned RBS and Lloyds would provide 94 billion pounds of new loans to businesses, he said. The Conservatives say they would introduce a unilateral tax on banks similar to that planned by U.S. President Barack Obama if they win the election, likely to be held in early May, but will levy it at a lower level if they cannot do it as part of an international initiative.
"Going it alone would costs thousands of jobs, not just in London, but across the country," Darling said.
Britain's record budget deficit remains front and centre for investors after some ratings agencies have suggested the UK's top-notch credit rating could be under threat without a clear plan to cut debt.
Darling said he was able to revise down his forecasts for the budget deficit in the current and next fiscal year. Public sector net borrowing in 2009/10, Darling said, would come in at 166.5 billion pounds, or 11.8 percent of GDP, compared with a December pre-budget report forecast of 177.6 billion pounds.
In 2010/11, borrowing is expected to come in at 163 billion pounds versus 176 billion previously forecast. Future years have also been revised down.
"The path of the deficit is a bit lower over the next four years. It's inching in the right direction, Brian Coulton of ratings agency Fitch told Reuters in an interview.
Fellow ratings agency Standard and Poor's also saw no reason to change its assessment.
Downward revisions to borrowing had been widely expected by analysts. Not only has unemployment in Britain risen less steeply expected, equity and oil prices have rebounded faster, meaning government spending has been slightly lower and revenues higher than previously feared.
On the basis of the new forecasts, Britain will sell 187.3 billion pounds of government bonds in the 2010/11 fiscal year, the Debt Management Office said, in line with forecasts, and well below the 225 billion shifted this year.
A Reuters poll on bond strategists predicted on Wednesday that yields on British government bonds will rise sharply this year but there is only a slight chance the country will lose its top credit rating.
Darling stuck to his December forecasts of economic growth of 1 to 1.5 percent for this year. In 2011, he predicted the economy to grow by by a very robust 3.0 to 3.5 percent -- much more optimistic than most analysts.
Britain crept out of recession in the last quarter of 2009, later than most of its major trading partners.
Date created : 2010-03-24