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Europe
UK braces for budget cuts
Coalition government set to announce massive cuts in public spending to tackle deficit.
Last Modified: 22 Jun 2010 02:07 GMT
David Cameron, the prime minster, has said tough action is needed to tackle the record deficit [AFP]

Britain's new coalition government is set to announce big cuts in public spending and significant tax increases as it unveils an emergency budget intended to rein in a massive public deficit.

George Osborne, the UK's finance minister, is expected to lay out the Conservative-Liberal Democrats' budget to parliament in London at 1130 GMT on Tuesday.

The new government, which took power following last month's general election, says the UK's debt is now so high that deep austerity measures are needed to avoid a loss of confidence in the economy.

Measures Osborne was reportedly set to announce include a freeze in welfare benefit payments, as well as a possible rise in sales tax known as VAT.

Appearing on BBC television on Sunday Osborne said he was determined that the measures would be tough but also fair.

"What we're clear about is that all parts of society are going  to have to make a contribution,"  he said.

Savage cuts

Meanwhile, preparing millions of public sector workers for what are expected to be savage cuts, David Cameron, the prime minister said it was "fair" that they should face a squeeze on pay and pensions.

"There is no way of dealing with an 11 per cent budget deficit just by hitting either the rich or the welfare scrounger"

David Cameron,
UK prime minister

"There is no way of dealing with an 11 per cent budget deficit just by hitting either the rich or the welfare scrounger," he said in a weekend interview with The Times newspaper.

Nick Clegg, the coalition's deputy prime minister and leader of the Liberal Democrat party said in a message to supporters on Monday that the budget measures would be "one of the hardest things we will ever have to do."

"But I assure you, the alternative is worse: rising debts, higher interest rates, less growth and fewer opportunities."

The opposition Labour party, ousted at the May 6 general election after 13 years in power, has warned that moving too swiftly to make cuts could endanger a fragile economic recovery and could push the country back into recession.

"We have to be very cautious about the rate at which money is taken out of the British economy," said the party's finance spokesman Alistair Darling.

Record deficit

The new government is seeking to save tens of billions of pounds as state borrowing is forecast to reach $230bn or 10.5 per cent of gross domestic product (GDP), in the year to March 2011.

The UK's public deficit had rocketed to a record-high in the last fiscal year to March, as severe recession hit tax revenues and the government spent billions of pounds on bailing out banks.

The country's economy is predicted to grow by only 2.6 per cent in 2011 as it recovers from a record recession that ended late last year, according to the Office for Budgetary Responsibility (OBR), an independent fiscal watchdog set up by the new government.

That compared with a 3.25-per cent expansion forecast by the  previous Labour government.

Source:
Agencies
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