LONDON — Spending cuts, higher taxes on capital gains and a break for the poorest taxpayers are expected to be part of the emergency budget plan which Britain’s new government is announcing Tuesday.
Treasury chief George Osborne will lay out the details at midday in a crucial moment in the government’s efforts to close a yawning gap between income and expenditure and allay fears over the country’s debt load.
Economists are predicting a possible extension to a one-year freeze on public sector pay, a purge of benefits and a likely rise in a tax on goods and services which now stands at 17.5 per cent.
The budget is also expected to include more detail on plans for a bank levy, and to deliver an election promise made by the Liberal Democrats — the junior coalition partner — to scrap income tax for the country’s lowest earners.
Nigel Lawson, who served Margaret Thatcher as her Treasury chief from 1983 to 1989, said Osborne’s economic plan was crucial to reverse the “mismanagement” of former Prime Minister Gordon Brown’s government.
“This budget today is far and away the most important budget he will ever have to deliver,” Lawson told GMTV television.
The Conservative-Liberal Democrat coalition has abandoned the previous government’s pump-priming approach to emphasize spending cuts. Cameron’s team talks about a mix of 80 per cent spending cuts and 20 per cent tax increases.
The previous Labour Party government under Gordon Brown pumped billions into keeping the economy afloat as Britain endure a deep 18-month recession.
Debt has risen above 900 billion pounds (US$1.3 trillion), or 62 per cent of gross domestic output; unemployment is 7.9 per cent and inflation remains stubbornly high at 3.4 per cent.
The new Office for Budget Responsibility earlier this month downgraded the economic forecast to 2.6 per cent growth in 2011, compared to the 3.25 per cent estimate the previous government offered in March.
The deficit is currently at 10.4 per cent of GDP, and the European Union has warned that it is likely to rise to 12 per cent this year. Debt is expected to reach 88 per cent of GDP in 2011 or 2012, overtaking the EU average.