March 16, 2016 / 12:13 AM / 2 years ago

UK's Osborne aims to keep austerity on track as EU referendum nears

LONDON (Reuters) - British finance minister George Osborne will try to get his austerity drive -- and his own political ambitions -- back on track on Wednesday, without upsetting voters before June’s EU membership referendum.

Britain's Chancellor of the Exchequer George Osborne visits the Crossrail station construction site at Tottenham Court Road in central London, Britain, March 15, 2016. REUTERS/Stefan Rousseau/Pool

Osborne, who portrays himself as an unflinching guardian of the public finances, has slipped from the top of the list of contenders to be Britain’s next prime minister, thanks to a slowing economy and some missteps on his part last year.

Government plans to turn a budget deficit into a surplus by the end of the decade look off course after the economy performed more weakly than expected.

Official data shows Britain’s economy in 2015 was 18 billion pounds, or about 1 percent, smaller than projected in the forecasts that underpinned Osborne’s most recent budget plans.

Britain’s budget forecasters could also embarrass Osborne if they predict he will miss another target of bringing down public debt as a share of economic output each year.

On Sunday, he said he would need to announce fresh spending cuts in his annual budget statement to parliament, which starts at 1230 GMT.

But with voters split on whether to stay in the European Union, he is likely to play it safe and delay the extra squeeze on spending until the later years of the decade.

Osborne knows many Conservative Party supporters are unhappy about his support for Britain’s continued membership of the EU. His main rival for the party’s leadership, London Mayor Boris Johnson, is backing the ‘Out’ campaign for the June 23 vote.

Mindful of the need not to further antagonize Conservative voters, Osborne has signaled he will not for now pursue his plans to close costly tax loopholes in the pension system.

Instead, he may end a five-year freeze on fuel duty, hoping that motorists will not feel it too sharply after the plunge in global oil prices. Shares in insurance firms fell this week on speculation that taxes on their premiums might rise again.

Some sweeteners will be on the table. Osborne said overnight that schools would get extra money to lengthen their day and boost standards, and has announced funding for new rail links in London and northern England.

Osborne also likes to use budgets for surprise moves such as July’s big increase in the minimum wage. But these have often soured within days as details of hidden cuts emerged, said former senior civil servant Julian McCrae, now deputy director of the Institute for Government.

“The room for political triumphs is reducing, as the fiscal pressure is very real,” he said.

A Reuters poll showed a majority of economists thought the target of a surplus by 2019/20 was likely to be missed and many question whether it is needed at all.

Osborne has been criticized too for sticking to his plans to ease the income tax burden on Britain’s higher earners by raising the threshold at which people start to pay the top rate.

“This already challenging fiscal target will be made tougher still if Osborne chooses to prioritize tax cut pledges for higher income households,” said Matt Whittaker, chief economist at the Resolution Foundation think tank.

Additional reporting by David Milliken; Editing by Ruth Pitchford and Catherine Evans

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