The UK’s chancellor of the exchequer, George Osborne, has said he will raise taxes on banks and savers, while cutting welfare spending in a budget that aims to close a record deficit without strangling an economic rebound.
Mr Osborne said yesterday the "pain" of the biggest spending squeeze in 30 years will be spread over the Parliament's five- year term and that his plans "will put beyond doubt" his resolve to fill the budget hole.
His austerity plan, coming six weeks after the Conservative-led government took office, will tomorrow set the size of the budget while leaving details of cuts until he maps out departmental plans in the autumn.
Mr Osborne said it remains a "good rule of thumb" that spending cuts account for 80 per cent of the consolidation and that tax increases make up 20 per cent.
The independent Institute for Fiscal Studies estimates that Mr Osborne will need to squeeze the budget by £85 billion, equivalent to 5.7 per cent of gross domestic product, to eliminate the shortfall by 2015.
Some economists and opposition parties say current government forecasts of 2.6 per cent growth in 2011 and 2.8 per cent in 2012 may be scaled back as Mr Osborne's measures suck resources out of the economy.
During this year's election campaign ex-prime minister Gordon Brown said immediate spending cuts sought by Conservatives risked a double-dip recession.
Former Bank of England policy maker David Blanchflower said the spending cuts "look certain" to push the UK back into a recession. "You can't just decimate the public sector and assume the private sector will step into the hole," Mr Blanchflower said in an interview with Bloomberg.
Part of the effort to sell the austerity measures to voters will include a levy on banks' assets or liabilities that will raise at least £2 billion a year, according to three people with knowledge of the plans.
Mr Osborne signalled he will make the announcement this week. A poll by ComRes in yesterday's Independent on Sunday suggests voters accept the need for fiscal retrenchment.
More than half said child benefits should be withdrawn from the wealthiest families, while 48 per cent said they would rather pay more taxes than have public spending cut.
Mr Osborne told the BBC that he'll press ahead with plans to increase capital-gains tax to prevent rich people from declaring earned income, which is subject to as much as 50 per cent tax, as a capital gain that is liable to an 18 per cent tax.
He declined to say whether he will raise value-added tax. Of the UK.'s current £704 billion budget, more than a quarter, or £196 billion, is targeted for "social protection" measures, including welfare and pensions.
Total public-sector pay totals about £160 billion a year. The previous Labour government also planned to spend £122 billion on health, £89 billion on education and £40 billion on defence.
Debt interest would make up for £43 billion pounds. Mr Osborne took aim at the welfare budget, saying it discourages people from working in favour of state handouts.
"It has got out of control in recent years," he said. The effort to trim the deficit will also focus on the public-sector workforce, Osborne said. He told the BBC that many of Britain's 6.1 million employees faced a wage freeze that extends beyond this year to keep their jobs.
The last Labour government added 900,000 workers to the state payroll during its 13 years in power, more than a third of them in the past two years to help counter the recession. The government now accounts for one in five jobs in Britain.
Bloomberg