British finance minister George Osborne cut personal income taxes but aimed new levies on the wealthy on Wednesday, taking a political gamble while pledging to stick to his government’s tough austerity plan.
He also said that Britain’s economy was improving, although growth is set to remain very modest this year.
In a move that will please his own Conservative party, he cut a 50 per cent income tax band for the highest earners to 45 per cent, from next year on. The Conservatives say that high a levy is a barrier to aspiration. The Labour opposition say it is a fair way to spread the pain.
In a nod to the Liberal Democrats, the junior coalition partner, Osborne raised the income tax threshold by more than previously announced to £9,205 ($14,300 U.S.), taking more poorly paid people out of the tax net.
Mr. Osborne also introduced a new 7 per cent stamp duty rate on sales of property worth more than £2 million. But he cut corporation tax 2 pence to 24 pence in April.
“We’ll be getting five times more money each and every year from the wealthiest in our society,” he said, in a statement opponents are likely to challenge.
Mindful of the risk that heavily indebted Britain could lose its prized top-notch credit rating, Osborne said there was no room to soften the plan of unprecedented spending cuts and tax increases, aimed at reducing sky-high debts.
A shock jump in public sector borrowing to a new record in February, released ahead of the budget statement, provided a stark reminder that the chancellor of the exchequer had no money to provide the fragile economy with a significant boost.
“This budget reaffirms our unwavering commitment to deal with Britain’s record debts,” Mr. Osborne said in his budget speech to parliament.
Despite the ongoing risks from the euro zone debt crisis, Britain’s economy was set to avoid a renewed recession and growth is expected to pick up in coming years, Mr. Osborne said.
The coalition government of Conservatives and Liberal Democrats also remained on track to meet its fiscal targets to erase the budget deficit - which topped 11 percent before it took office - within the next five years.
In November, the ongoing economic weakness had forced Mr. Osborne to add two more years of austerity after the 2015 election and pointing to a much slower recovery than they expected when they took power in 2010.
Ratings agencies have warned Britain that it could be downgraded, with apparently only Mr. Osborne’s unwavering determination to cut the deficit keeping them onside for now.
Britain has been hit hard by the 2007-2009 financial crisis and had to spend tens of billions to bailout major banks.
The recovery from the steep slump has been very weak, with the economy still running well below its pre-crisis peak and the unemployment rate at its highest in 16 years.
Many Britons have experienced the worst squeeze on their living standards in at least a generation as price rises outpaced meagre wage growth and the government’s tax increases and austerity measures are eating into households budgets.
But in recent weeks, the overall mood among businesses is slowly improving after taking a severe knock from the euro zone crisis at the end of last year.
The government’s Office for Budget Responsibility forecast that growth should pick up from the 0.8 per cent predicted for 2012 to 2.0 per cent next year and 2.7 per cent in 2014, leaving its November predictions largely unchanged.
The government’s Office for Budget Responsibility forecast predicted that net borrowing would fall from £126-billion in 2011/2012 to £21-billion in 2016/2017.
Overall Britain’s public sector debt as share of gross domestic product (GDP) will peak at 76.3 per cent in 2014/15 before falling, fulfilling the second part of the fiscal target.
Any hopes for stimulus still rest squarely with the central bank and Wednesday’s minutes suggested those chances of more money printing are receding.
Minutes from the Bank of England’s latest meeting, also released on Wednesday, showed rising concerns about oil prices and future wage inflation, in a sign that the central bankers may be reluctant to extend quantitative easing beyond the current target of £325-billion.