Chancellor of the Exchequer George Osborne said the U.K. economy will grow more than previously forecast and announced help for savers and pensioners as he set out his penultimate budget before the 2015 election.
The estimate of 2.7 percent growth for this year made by the Office for Budget Responsibility, Osborne’s fiscal watchdog, is an increase from the 2.4 percent the OBR predicted in December. Growth is predicted at 2.3 percent next year. Osborne also announced lower forecasts for borrowing.
“If you’re a maker, a doer or a saver, this budget is for you,” Osborne told lawmakers in the House of Commons in London today as he introduced his annual budget. “With the help of the British people we’re turning our country around. We’re building a resilient economy.”
With just over a year until the election and Osborne’s Conservatives trailing the Labour opposition by about six percentage points in polls, the chancellor says the economy still needs to be rebalanced toward exports and investment as it recovers. He sought to fend off Labour accusations he’s ignored the effects of rising prices during four years of government-imposed austerity, making families worse off.
The U.K.’s budget deficit will be 108 billion pounds ($180 billion) this year, 12 billion pounds less than predicted a year ago, Osborne told lawmakers. In 2014-15, the deficit will be 95 billion pounds and 75 billion pounds in 2015-16, he said, citing the OBR’s estimates. By 2018-19 there will be a surplus of 5 billion pounds, he said.
“Securing Britain’s economic future means there will have to be more hard decisions; more cuts,” Osborne said, setting the tone for next year’s election. “The question for the British people is: who has the credibility to deliver them?”
Osborne addressed the concerns of savers who’ve suffered from record-low interest rates by increasing the annual limit for tax-free savings in Individual Savings Accounts to 15,000 pounds. He increased the limit for saving in premium bonds, which offer the chance of monthly cash prizes, and overhauled pension rules to make them more flexible and allow people greater access to their pension savings.
Retirees will no longer have to buy an annuity from their accumulated savings and will face lower taxes if they take a lump sum.
“You have earned it, you have saved it and this government is on your side,” the chancellor said. “People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances.”
The threshold for paying basic-rate income tax will rise to 10,500 pounds in 2015 from 10,000 pounds, and the amount of income for paying tax at 40 percent will go up to 41,865 pounds in April from 41,450 pounds, with a further 1% increase next year.
A fuel-duty increase scheduled for September has been canceled, Osborne said. The tax on bingo clubs, which are mostly frequented by the lower-paid, will be cut in half to 10 percent. The chancellor also froze duty on whiskey and cider and cut tax on beer while reducing air-passenger duty on long-haul flights.
“We want to help hard-working people keep more of what they earn and of what they save,” Osborne said. “Tax cuts for those on low incomes –- and those on middle incomes too. Help for hard-working people as part of a long-term economic plan.”
Osborne was boosted by statistics published today that showed unemployment fell 63,000 to 2.33 million people in the three months through January compared with the August-October period while wage growth accelerated. Minutes from the Bank of England’s March policy meeting showed officials voted unanimously to keep interest rates at a record-low 0.5 percent and maintain the asset-purchase target at 375 billion pounds.
The chancellor will need to rely on monetary policy to sustain the economic recovery as the fiscal consolidation started in 2010 is not yet halfway through, Jonathan Loynes, chief European economist at Capital Economics Ltd. in London, said in a note. “The chancellor has resisted the temptation to spend some of the proceeds of stronger economic growth to try to boost the government’s still depressed opinion-poll ratings,” Loynes said. “Mr. Osborne may yet decide to loosen the shackles a bit ahead of next year’s general election if the government’s popularity does not improve.”
Osborne outlined further clampdowns on tax avoidance, increased taxes on private jets and stamp duty on homes bought through companies as he sought to show that the rich will pay more even as he announced a cap on benefits for the poor.
“The public tolerance for those who do not pay their fair share evaporated long ago,” he said. “The distributional analysis published today shows that the budget decisions, and the decisions across this Parliament, mean the rich are making the biggest contribution to the reduction of the deficit because we are all in this together.”
Welfare spending apart from pensions will be capped at 119 billion pounds in 2015-16, rising in line with forecast inflation to 127 billion pounds in 2018-19, Osborne said.
“We already know the answer to the question millions of people will be asking in 2015 -- are they better off than they were five years ago? The answer is no,” Labour leader Ed Miliband said in his response to the budget, arguing that there have been 24 tax rises since Osborne became chancellor in 2010. “It’s a classic Tory con. Give with one hand and take far more away with another.”
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