British pre-election budget aims to slash debt

British finance minister Alistair Darling has cut his borrowing and growth forecasts in a pre-election budget that he says will help secure the nation's recovery from a record recession.

Alistair Darling, British Finance Minister, presented Britain's pre-election budget before Parliament on Wednesday 22 March (Photo : Reuters)

"This will be a budget to secure the recovery, tackle borrowing and invest in Britain's industrial future," said Chancellor of the Exchequer Darling in his budget speech before parliament Wdnesday.

But he also warned of "tough choices ahead", hinting at possible future spending cuts.

Darling has announced a 2.5-billion-pound (2.7-billion-euro) growth package to help strengthen recovery, as the Labour government fights to stay in power in the general election expected on 6 May.

Darling’s budget sets out how the government aims to stick to its plan of halving the deficit in four years:

• He aims to cut the deficit to four per cent of GDP by the 2014-2015 financial year;
• Economic growth forecast for 2011 is reduced to 3-3.5 per cent, down slightly from  December's forecast of 3.25-3.75 per cent;
• Darling held his prediction of 1-1.5 per cent expansion this year;
• Official borrowing target trimmed to 167 billion pounds (186 billion euros) for the current financial year, down from a previous estimate of 178 billion pounds (198 billion euros);
• Darling unveiled a growth package, worth 2.79 billion euros, to "help small business, promote innovation and invest in national infrastructure";
• To boost the battered housing market, he lifted the lower tax threshold
  for property purchases to 250,000 pounds, from 125,000 pounds previously;
• The government had so far raised two billion pounds (2.2 billion euros) from a bonus "supertax"  on bankers' bonuses last December;
• The government plans to sell out shares in The Royal Bank of Scotland and Lloyds Banking Group, as well as Northern Rock  - after a series of multi-billion-pound rescue packages, the government now owns 84 per cent of RBS and 41 per cent of Lloyds, while it nationalised lender Northern Rock outright;
• The government will create a green bank to invest in environmentally-friendly transport and energy projects - half its two billion pounds (2.2 billion euros) equity will come from the sale of assets, including the Channel Tunnel rail link, with the rest matched by private investment.

Public debt has surged to record levels due to the huge banking bailouts and recession-hit taxation revenues.

Britain's budget comes amid heightened concern about soaring public deficits in eurozone member nations Greece and Portugal, whose finances were also battered by a severe downturn. European stock markets were sent into a spin on Wednesday after Portugal was slapped with a ratings downgrade.

Britain was recently warned that the perilous state of public finances put its top AAA credit assessments at risk.

Debt, deficits and unemployment in Europe

The EU’s Growth and Stability Pact forbids countries from having public debt higher than 60 per cent of Gross Domestic Product. The public deficit of eurozone members, or new borrowing per year, cannot be higher than three per cent of GDP. Greece is not the only eurozone member with problems. Here’s how other European countries are peforming:

Greece: Public deficit: 12.7 % of GDP (in 2009); Public debt: More than 300 billion euros, or 125% of GDP (2010 forecast); Unemployment rate: 9.7%.

Germany: Public deficit: 5.5 % (2010 forecast); Public debt: 76 %; Unemployment rate: 8.6 %. 

United Kingdom: Public deficit: 12.7 % (2009); Public debt: 80.3% (2010 forecast); Unemployment rate: 7.8%.  

Spain: Public deficit: 11.4 % (2009); Public debt: 66.3% (2010 forecast); Unemployment rate: 19.5 %. 
 
Portugal: Public deficit: 9.3 %; Public debt: 84.6% (2010 forecast); Unemployment rate: 10.4%.

Italy: Public deficit: 5.3 % (2010 forecast); Public debt: 115.8 %; Unemployment rate: 10 %.

Ireland: Public deficit: 14.7 % (2010 forecast); Public debt: 82.9% (2010 forecast); Unemployment rate: 13.3%.

France: Public deficit: 8.2 % (2010 forecast); Public debt: 83.2 % (2010 forecast); Unemployment: 10 % (fourth quarter 2009).