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British Budget Outlines Higher Growth and Help for Savers and Retirees British Budget Outlines Higher Growth and Help for Savers and Retirees
(about 4 hours later)
LONDON — With a sharp pickup in economic growth but limited room for giveaways, Britain’s chancellor of the Exchequer, George Osborne, laid out new financial plans Wednesday including modest tax breaks and measures to bolster savings, business investment and exports. LONDON — Arguing that austerity budgets had delivered a recovery sooner than expected, Britain’s chancellor of the Exchequer, George Osborne, laid out new financial plans Wednesday that included help for savers and retirees, as well as measures meant to spur business investment.
Fourteen months ahead of Britain’s next general election, Mr. Osborne claimed credit for unexpectedly rapid economic growth that he said was now expected to be 2.7 percent this year and 2.3 percent in 2015. His previous forecast was that growth would be 2.4 percent this year. Fourteen months away from the next general election, Mr. Osborne stressed that while growth forecasts were being revised up to 2.7 percent this year, more spending curbs were needed to bring the country’s shaky public finances back into line.
Mr. Osborne said he saw the strong rebound as evidence of the success of his austerity strategy, but argued that much more needed to be done to cut spending and bring down government debt and borrowing. That is a central argument of his Conservative Party, which leads the coalition government and will appeal to voters next year not to put the recovery at risk by electing the opposition Labour Party. “The job is far from done,” said Mr. Osborne, whose Conservative Party, which leads Britain’s coalition government, is appealing to voters not to put the recovery at risk in next year’s election by voting the opposition Labour Party into power.
“The job is far from done,” Mr. Osborne said. After the financial crash of 2008 and a massive bank bailout, Britain has been seen by some economists as a laboratory for the policies of austerity and retrenchment that took hold across Europe. Even last year, there were fears here that the economy could return to recession.
He added that the deficit was too high but that he aimed to build “a resilient economy” and run a small budget surplus by 2018-19. Because of the brightening economic climate, the budget presented Wednesday was the least controversial in recent years, a sign in itself of Mr. Osborne’s improved fortunes.
Because of the brightening economic climate, the budget presented Wednesday was the least controversial in recent memory, a sign in itself of Mr. Osborne’s recent success. Even last year, there were fears that the British economy could return to recession. Now it is expected to be one of the fastest-growing economies in the developed world in 2014. “There is no major advanced economy in the world growing faster than Britain today,” Mr. Osborne said in Parliament, where he announced an increase in the amount employees can earn before paying income tax, to 10,500 pounds, or about $17,450. But Mr. Osborne’s room for maneuver remains limited. With the budget deficit “one of the highest in the world” at around 6.6 percent in 2014, Mr. Osborne conceded that “faster growth alone will not balance the books.”
“There is no major advanced economy in the world growing faster than Britain today,” Mr. Osborne said. But he sought to turn his continued commitment to austerity to political advantage by announcing a cap on welfare spending of £119 billion in 2015-16. That move is designed both to help restrain expenditures and to present himself as tougher on cutting social security payments than the Labour Party would be.
Speaking in Parliament, Mr. Osborne announced an increase in the amount employees can earn before paying income tax, to 10,500 pounds, or about $17,450. Meanwhile Mr. Osborne offered a new bond for retirees that offers a good rate of return and proposed a significant change in the way that retirement savings in pension schemes can be used or spent. That could have a big long-term impact on the financial services industry and may also allow some people to spend their savings in the short term, as a spur to the economy. With an election looming, retirees are a crucial demographic group because a high proportion of them tend to vote.
He also announced a cap on welfare spending of £119 billion in 2015-16, a move designed both to help restrain expenditure and to present himself as tougher on cutting social security payments than the opposition Labour Party would be. John Fox, director of Liberty SIPP, a provider of pension products, said it was “no coincidence” that the pension measures would give the economy an influx of cash ahead of the election, creating a “feel-good factor.”
Among his announcements were moves to increase lending for exporters, to clamp down on tax avoidance, to cut energy bills for industry and to provide a big expansion of tax breaks for companies that invest. The budget also expanded a program that exempts some individual savings accounts from a tax on interest. And in a move welcomed by drinkers but not the health lobby, Mr. Osborne froze the tax on whiskey and cut the tax on a pint of beer by one penny.
Mr. Osborne proposed more flexibility for using retirement savings and a new bond for retirees that offers a higher rate of return. The budget also expands a program that exempts some individual savings accounts from tax on interest. He cut the tax on a pint of beer by one penny. The Labour Party argued that voters were still suffering a cost-of-living squeeze. Ed Miliband, the Labour leader, told lawmakers that, since the last election, working people’s living standards had effectively declined by £1,600 a year. They are “falling sharply and steeply,” he said.
Mr. Osborne also outlined moves to replace the current one pound coin, which is deemed too easy to forge, with a 12-sided coin that has some resemblance to the “thrupenny bit,” which was worth three pennies and taken out of circulation in 1971. There was a more positive reaction from the Confederation of British Industry, the main business lobby group, which said the statement would “put wind in the sails of business investment, especially for manufacturers.”
The new coin may appeal to older Britons but is unlikely to be popular with the vending industry, which would face millions of pounds in conversion costs. The group welcomed moves to increase lending for exporters, cut energy bills for industry and provide a big expansion of tax breaks for companies that invest. “The economy needs to rebalance, and this budget will help businesses hungry to invest and export,” the organization said.
In response to the spending plan, Ed Miliband, the leader of the opposition Labour Party, said that citizens were worse off under the Conservative Party. Since the last general election, in 2010, working people’s living standards have been “falling sharply and steeply,” and were £1,600 a year lower, he said. Mr. Osborne also outlined moves to replace the current one-pound coin, which is deemed too easy to forge, with a coin whose edge has 12 sides. The new design has some resemblance to the “thrupenny bit,” which was worth three pennies and taken out of circulation in 1971. The coin may appeal to older Britons, for nostalgia’s sake, but is unlikely to be popular with the vending industry, which would face millions of pounds in conversion costs.
Before the budget presentation, the government announced plans to offer up to £2,000 in child care subsidies to working parents, although this would not take effect until after the next election. It has also proposed a small increase in the minimum wage, to £6.50. Before the budget presentation, the government announced plans to offer up to £2,000 in child care subsidies to working parents, although that would not take effect until after the election. It has also proposed a small increase in the minimum wage, to £6.50.
In a previous budget, Mr. Osborne was criticized for being out of touch when he increased taxes on pasties, a savory snack that is popular with working people. On Wednesday he appeared to try to atone for that error by cutting a tax on bingo. Although seen as a key strategist for his party, Mr. Osborne’s budgets have not always been well received. After one previous statement, which became known as the “omnishambles” budget, he was criticized for being out of touch when he increased taxes on pasties, a savory snack that is popular with working people. He appeared on Wednesday to try to atone for that misjudgment by cutting a tax on bingo.
Despite the encouraging news on growth, the state of Britain’s public finances has limited Mr. Osborne’s maneuvering room. Despite the encouraging news on growth, Britain’s public finances remain weak, said Rob Wood, chief United Kingdom economist for Berenberg Bank in London. He said that because “the underlying structural budget deficit is not improving faster than expected,” there was little room for tax cuts.
“Amid a snowballing recovery, the United Kingdom fiscal deficit should fall faster than the government has forecast,” Rob Wood, chief United Kingdom economist for Berenberg Bank in London, wrote in a prebudget analysis. “But that largely reflects a cyclical upturn, rather than a structural improvement in the finances. There is no good news on the latter.” Mr. Osborne’s measures were, from an economic perspective, sensible but “amount to shuffling the cards rather than fundamental changes,” Mr. Wood said, adding that the pace of the economic rebound did not prove that Mr. Osborne had won the austerity argument.
“Britain is around halfway through the austerity needed to eliminate the underlying budget deficit,” he added.
Also writing ahead of the parliamentary statement, Mujtaba Rahman of the consulting firm Eurasia Group said that Mr. Osborne’s strategy was to continue with austerity measures but to offer voters some limited sweeteners, while saving more for a date closer to the general election, due in May 2015.
“Unemployment has dropped much faster than expected, inflation has hit the Bank of England’s 2 percent target for the first time in four years and the economy is set to grow faster than forecasted,” he wrote.
Mr. Osborne was likely “to save any further sweeteners until the half-yearly review in November or December, or for March 2015, just weeks before the general election,” Mr. Rahman added.