Britain misses deficit target but raises growth outlook

Britain's Chancellor of the Exchequer George Osborne (left) and Chief Secretary to the Treasury Danny Alexander leave the Treasury to present the Autumn Statement to Parliament in London Dec 3, 2014. -- PHOTO: REUTERS
Britain's Chancellor of the Exchequer George Osborne (left) and Chief Secretary to the Treasury Danny Alexander leave the Treasury to present the Autumn Statement to Parliament in London Dec 3, 2014. -- PHOTO: REUTERS

LONDON (AFP) - Britain unveiled its last major budget update before next year's general election, admitting a key deficit-cutting target had been missed but revising up economic growth forecasts.

Finance minister George Osborne promised an overhaul of property taxes and spending increases on health care and infrastructure, toning down the austerity cuts that dominated previous budgets.

Osborne also promised more help for British exporters in emerging markets and a new 25 per cent levy aimed at multinational tech companies that have avoided paying taxes on profits in Britain.

He said the economy was now forecast to grow by 3 per cent this year compared with a previous prediction of 2.7 per cent, and also revised up the estimate for 2015 to 2.4 per cent from 2.3 per cent.

But he admitted that the deficit "remains too high" at a forecast £91.3 billion (S$187 billion) in the year to March 2015, higher than a previous estimate of £86.4 billion.

That represents 5 per cent of gross domestic product, compared with 10.2 per cent when the coalition government came to power in 2010.

British Prime Minister David Cameron's Conservative Party had promised to wipe out the deficit altogether by the end of its five-year mandate.

Osborne said the deficit was forecast to fall further to 4 per cent next year, before moving into a surplus of 0.2 per cent in 2018/19.

"Today, against a difficult global backdrop I can report higher growth, falling unemployment, falling inflation and a deficit which is half what we inherited," Osborne said.

With employment rising but many new jobs lower paid, the government has seen tax receipts shrink, hindering its bid to reduce the country's budget deficit further.

But Osborne hailed his achievements, saying they were particularly significant since "the warning lights are flashing over the global economy".

'COST OF LIVING CRISIS'

With Britons headed for the polls in May, Osborne was under pressure to deliver a crowd-pleasing budget that analysts said will only stave off more painful budget cuts until after the election.

While warning of "very substantial savings" needed in public spending, he promised £2 billion in extra money for the National Health Service - a key battleground in the 2015 polls.

He also said the government would legislate to allow Northern Ireland to set its own corporation tax, a key demand in the province which said it has been penalised because of the far lower rate of 12.5 per cent in the neighbouring Republic of Ireland.

Charles Davis, director of the Centre for Economics and Business Research, said the budget update was "always going to be more political than anything else - and so it proved".

"The uncertainty over the outcome of the next election and how exactly the government will reduce its still huge borrowing requirement while funding major investment programmes are still the elephants in the room," he added.

The government has come under pressure from the opposition Labour party and trade unions, which have warned that growth has not translated into higher living standards for many people.

"For working people, there is a cost-of-living crisis," Ed Balls, the shadow finance minister from the opposition Labour party, told lawmakers.

Also on Wednesday, Osborne said the government would repay the £1.9 billion of debt still outstanding from Britain's role in World War I.

War Loan bonds are among the most widely held in Britain, with an estimated 120,000 holders.

"It is a sign of our fiscal credibility and it's a good deal for this generation of taxpayers," he said.