UK budget: George Osborne moves to get finances on track

George Osborne will use Wednesday's budget to announce ambitious plans to improve transport infrastructure in London and the north of England. But slower-than-expected economic growth means that the chancellor of the exchequer has limited room for manoeuvre if he wants to achieve his goal of eliminating Britain's budget deficit within five years.

The chancellor is expected to confirm government support for a high-speed rail link between Manchester and Leeds, and the Crossrail 2 project that will connect Surrey and Hertfordshire through a tunnel running beneath central London from north to south.

Powerhouse

The

National Infrastructure Commission

(NIC) which was set up last year to advise the government on major projects, last week called for work on Crossrail 2 to begin as soon as possible. On Tuesday, the NIC said that significant investment in transport links in the north of England was needed immediately if the chancellor’s vision of a Northern Powerhouse to revitalise the region was to become a reality.

"If the north is to become a powerhouse, it has to be better connected. Leeds and Manchester are just 40 miles apart but there is no quick and easy way to travel between the two. In rush hour, it can take more than two hours by car; by train, it can be almost an hour," said Andrew Adonis, the former Labour minister who heads the NIC.

“A better connected north will be better for jobs, better for families and better for Britain. The work should begin as quickly as possible.”

The chancellor claimed his decisions would push forward the largest investment in the railway system since Queen Victoria sat on the British throne. He said such investment was more necessary than ever in view of the current difficulties in the global economy.

“Now is the time us to make the bold decisions and the big investments that will help us to lead the world in infrastructure, and create jobs, push up living standards and boost our productivity for the next generation. That’s what my budget this week sets out to do,” he said.

Mr Osborne admitted this week that lower economic growth meant that he may have to cut as much as 50p in every £100 the government spends if he wants to reach his fiscal target.

He could achieve this by cutting about £4 billion a year from public spending, which would have a disproportionate impact on some areas of government because some of the biggest spending departments, such as health and education, have budgets that are protected from cuts.

Postpone cuts

The chancellor could, however, choose to postpone any cuts in public spending until 2018 or 2019, giving himself the future option of abandoning them altogether if public finances improve or the economic situation worsens.

As the leading contender to succeed David Cameron as Conservative leader and prime minister before the end of this parliament, Mr Osborne is alert to the potential impact of the budget on his own popularity. And neither the chancellor nor the prime minister will be eager to court unpopularity ahead of Britain’s EU referendum on June 23rd.

The chancellor may seek to raise extra revenue by taking advantage of low oil and gas prices to increase fuel duty. And he is expected to close some corporate tax loopholes, including one which allows multinational companies to avoid paying tax by shifting debt from other jurisdictions into Britain and claiming tax relief.