Britain swings austerity axe but spares key welfare scheme, police

Chancellor George Osborne leaves the Treasury to present the Autumn Statement to Parliament.
Chancellor George Osborne leaves the Treasury to present the Autumn Statement to Parliament.REUTERS

LONDON (AFP) - Britain announced a fresh round of deep cuts to public spending on Wednesday but dropped a plan to cut welfare payments for the poorest and spared the police from savings after the Paris attacks.

Unveiling a budget update, finance minister George Osborne said the government, which is borrowing £73.5 billion (S$100 billion) this year, is on track to balance its books by 2019-20.

This will be achieved through the most significant belt-tightening in a generation which includes reducing welfare by £12 billion and the budgets of some government departments by up to 37 per cent.

However, Osborne, a leading contender to succeed David Cameron as prime minister when he steps down by 2020, avoided a succession of political beartraps as he announced his plans to a packed House of Commons.

He dropped a plan to cut tax credits - a benefit payment for low-income working families - after the House of Lords voted last month against the move in a humiliating defeat for the government.

Opponents of the move, including many within his own centre-right Conservative party as well as the main opposition Labour party under Jeremy Corbyn, said it would have left over three million families worse off.

"I've listened to the concerns. I hear and understand them," Osborne told lawmakers.

"Because I've been able to announce today an improvement in the public finances, the simplest thing to do is not to phase these changes in, but to avoid them altogether."

Osborne, finance minister since Cameron took office in 2010, said that the decision was affordable because of projections that tax revenues were set to increase.

Treasury sources indicated that the full £12 billion of planned welfare savings would still be carried out through reductions to other types of state benefits.

The 44-year-old, effectively Cameron's No. 2, also sprung a surprise by announcing that police funding would not be cut, defying a widespread expectation among senior officers and commentators.

"Now is not the time for further police cuts," Osborne told the Commons. "The police protect us and we're going to protect the police."

In England and Wales, the number of police has fallen nearly 12 per cent since 2010 and senior police figures had warned that a further reduction could hit their ability to prevent a major Paris-style attack in Britain.

Britain's official economic growth forecast was held at 2.4 per cent for 2015 but revised up to 2.4 per cent for 2016 from 2.3 per cent.

Debt was predicted to be 82.5 per cent of national income this year, down from 83.6 per cent at the time of Osborne's annual budget in July.

The finance minister also lowered his borrowing forecasts to £73.5 billion this year and to £49.9 billion next.

But some analysts questioned how Osborne's figures added up.

"In an upbeat statement to parliament, the UK's Chancellor of the Exchequer, George Osborne, suggests that UK growth will be stronger than previously thought, government borrowing will be lower and austerity will be relaxed," ING economist James Knightley said.

"Many will question how a £27 billion improvement in the government's fiscal position has been generated from such a marginal increase in the growth forecast, modest changes to the interest rate outlook and the introduction of higher stamp duty on second homes."

Labour finance spokesman John McDonnell, a key ally of left-winger Corbyn, accused Osborne of taking too long to eliminate the deficit.

"The reality is this: after five years, the deficit has not been eliminated and this year it is expected to be over £70 billion," he said.

Osborne sweetened the cuts by announcing an affordable house building programme amid complaints that demand has priced many properties out the reach of all but the wealthiest, particularly in southeast England.

The government will build 400,000 affordable homes in the "biggest house building by any government since 1970s", with extra support for London, Osborne added.

He also announced a higher rate of tax on people buying second homes and buy-to-let properties.