UK BUDGET:MAJOR CUTS in government spending, including a freezing of some social welfare benefits and cuts to others, have been announced by British chancellor of the exchequer George Osborne, who has accelerated plans to cut borrowing in the UK.
In the budget, Mr Osborne set the ambitious target of clearing the UK’s structural deficit – the part of the overspending that will not be removed by economic growth – within five years, faster than he had intended during the election campaign.
Some departments’ budgets will be cut by a quarter over the five years though many state-sponsored bodies will simply have to disappear for the targets to be met. Details of a spending review will not be clear until the autumn.
Nearly 900,000 people will no longer pay income tax after a £1,000 increase to personal allowances, which will rise to £7,475 in April 2011, but those earning more than £40,000 will suffer higher taxes by stealth on future pay rises because the higher threshold is to be frozen for three years.
The biggest single tax rise will come from a 2.5 percentage point increase in VAT to 20 per cent, a move that will raise £13 billion, but which was roundly condemned last night by Labour, trades unions and welfare organisations as an attack on society’s poorest.
If successful, yesterday’s measure will see the UK’s current deficit falling from £150 billion, or 10.1 per cent of gross domestic product this year, to just 1.1 per cent per cent of GDP, or £20 billion, by 2014/15 – the government’s final year, if the Conservative/Liberal Democrats alliance runs to term. Labour had planned to cut the deficit to 3.9 per cent, or £71 billion, by then.
In the face of Tory MPs’ objections, capital gains tax rose from midnight to 28 per cent from 18 per cent for higher rate taxpayers, though concessions have been offered to small business owners selling their creations. They will pay 10 per cent tax on the first £5 million raised by any sell-off. However, Mr Osborne refused to offer any other concessions.
Child benefit will be frozen for three years, the chancellor announced, adding that he had considered taxing it or means-testing it. However, neither was practicable. Tax credits, which go to families with an income of up to £85,000, will now only be paid to those with incomes below £40,000, though the poorest will get an increase worth £150 per child next year.
Some of the biggest curbs are being made to housing benefits.
“Spending has risen from £14 billion 10 years ago to £21 billion today. Costs are completely out of control. We now spend more on housing benefit than we do on the police and on universities combined. Some families receive £104,000 a year in housing benefit. It is clear that the system of housing benefit is in dire need for reform,” said the chancellor, before announcing that benefits will be limited to £400 a week for three-bedroom homes, £250 a week for a one-bedroom flat, and £290 for a two-bedroom property.
The unemployed will find their housing benefit cut by 10 per cent after 12 months on the dole, leading to fears that some could be made homeless.
Lone parents will be expected to look for work once their youngest child reaches five years of age, rather than seven as now. Tougher medical assessments will also be imposed on those claiming disability benefits from 2013.
Public sector workers earning more than £21,000 face a two-year pay freeze, while those earning less will get a £250 rise each year. The basic state pension will be linked to earnings from April 2011, with the pension guaranteed to rise in line with earnings, prices or 2.5 per cent, whichever is the greater. The Government is to press ahead with moves to increase the pension age to 66.
