Osborne to cut spending in UK budget

George Osborne, Britain's chancellor of the exchequer will spell out his plans to reshape the country's economy when he announces the first budget of the new Conservative government on Wednesday.

It will be the first time in nearly 20 years that the Conservative Party has had a free hand to change how much Britain spends and raises in tax. In the last government, it was in coalition with the Liberal Democrats.

Below are some of the expected highlights of the budget that Osborne is due to announce in parliament at around 11.30am .

More spending cuts

The Conservatives and their former Liberal Democrat partners halved the budget deficit in a five-year coalition government that lasted until the May 7th elections. But at nearly 5 per cent of economic output it remains one of the biggest among world’s advanced economies.

Mr Osborne has said he plans to push ahead quickly with further deep spending cuts including reducing welfare spending for people under retirement age by 11 per cent. Britain’s pensions budget will not be cut so the axe is likely to fall on the next biggest welfare outlays which are housing benefit and tax credits to help lower-earning households.

A ceiling on welfare payments will be lowered by more than 10 percent to £23,000 a year per household in London and to a lower level in other parts of the country.

Britain’s publicly funded broadcaster, the BBC, will have to take on the £650 million cost of providing free television licences to people aged over 75.

Tax

Mr Osborne is likely to resist pressure from some Conservative MPs to cut the top of rate of income tax below its current level of 45 per cent. Instead, he wants to raise the threshold at which earners start paying income tax and at which they pay a 40 per cent tax rate.

He has also promised to increase the threshold for paying inheritance tax. To raise more tax revenues, Mr Osborne may announce the end of a freeze on fuel duty and reduce tax incentives for wealthy people to fund their private pensions.

Bank levy

The government may signal changes to the way it raises a levy on banks which was originally intended to help meet the costs of dealing with the financial crisis. HSBC has said it might move out of Britain over the levy which has been raised eight times since 2010.

Housing

Mr Osborne has said that households earning more than £40,000 a year in London and £30,000 elsewhere will have to pay closer to market rates for their rented public housing.

He may also announce changes to Britain’s planning laws which are considered to be a contributor to an acute shortage of homes in many parts of Britain.

Productivity

Mr Osborne has said his budget will include measures to tackle Britain’s poor productivity record which threatens to undermine the country’s longer-term economic prospects.

Some employers hope he will move ahead on infrastructure projects, increase tax incentives for investment in equipment and provide more funding for training, despite the squeeze on public spending.

- Reuters