LONDON • Prime Minister David Cameron's Conservatives have their best chance in almost two decades to remould Britain's economy next week, in their first Budget Statement after an unexpectedly decisive election victory.
Freed from needing the support of their former coalition partners, the Liberal Democrats, the Conservatives want to reduce borrowing faster this year and set out plans to cut the annual welfare bill by £12 billion (S$25 billion).
Since he took office in 2010, deficit reduction has been a central theme for finance minister George Osborne, whom Mr Cameron views as a potential successor.
Now Mr Osborne has a chance to make his mark with the first Budget by a fully Conservative administration since November 1996.
Mr Osborne is likely to take advantage of a growing economy and a new mandate for spending cuts to move faster towards his goal of a Budget surplus within three years.
"The outright victory of the Conservative Party came as a surprise to everyone. Now that it has an absolute majority, it can restate its fiscal plans in undiluted form," said Societe Generale economist Brian Hilliard.
Britain's public-sector net debt exceeded £1.5 trillion in May, more than 80 per cent of gross domestic product (GDP), and Mr Osborne wants to lock in Budget surpluses to bring this down rapidly before Britain is hit by another financial crisis. Britain's Budget deficit in the year to March was 4.9 per cent of GDP, larger than that of most other advanced economies.
In the coalition's last Budget, the deficit was forecast to fall this year to 4 per cent of GDP - equivalent to £75 billion. But citing strong tax revenue, lower borrowing costs and more spending cuts, economists expect the Budget watchdog to lower this forecast by about £10 billion.
This "front-loading" reduces the pace of spending cuts that Mr Osborne will need to make in future years to hit his Budget surplus target, which the Office for Budget Responsibility has likened to a roller-coaster.
The Conservative plans mean reducing welfare spending for people under retirement age by 11 per cent. Benefits in the firing line include housing subsidies and money paid to the unemployed, people with disabilities and low-income earners.
"This is going to be bloody," Mr Hilliard said. Last month, tens of thousands marched through London in a rally against austerity.
Conservative lawmaker Mark Garnier said his party had been clear about the scale of welfare cuts at the election, though he hoped they would be phased in gradually.
"George Osborne, without a sha-dow of a doubt, has a mandate to do this, and given the election was just two months ago, he needs to get on with it," he said.