Britain budget to drive down deficit, cut income tax
LONDON - Agence France-Presse
Britain's Prime Minister David Cameron is pictured as he leaves 10 Downing Street in central London, on March 21, 2012. AFP photoThe British coalition government unveils its third austerity budget in a row on Wednesday to cut a huge deficit but was expected to lower the top rate of income tax for the highest earners.
Finance minister George Osborne presents his annual 2012-2013 budget to the nation at 1230 GMT, and with many of its key announcements already leaked, market focus will be on changes to the Treasury's growth and deficit targets.
Osborne, the Chancellor of the Exchequer, has spoken of the need for the coalition government to stick firmly to its policy of slashing the deficit, especially since Britain is at risk of returning to recession this year.
Just last week, Fitch warned that Britain's gold-plated AAA credit rating was increasingly at risk and placed the country on negative watch.
"This is a just another warning to anyone who believes there can be deficit-financed giveaways in (the) budget," the Treasury said in response.
Britain's Conservative-Liberal Democrat government has implemented huge public spending cuts and tax rises to slash a record deficit inherited from the previous Labour administration in 2010.
And the coalition is eager to preserve Britain's valuable AAA credit rating, that keeps state borrowing costs low, and avoid a Greek-style sovereign debt crisis.
Ahead of Wednesday's budget, British media reported that Osborne would cut income tax for the highest earners from 50 percent to 45 percent, or to 45 pence to the pound. Osborne, presenting his third budget, has reportedly faced fierce pressure from the right wing of his Conservative Party and from business leaders to slash the top rate to help stimulate British economic growth.
In a bid to appease junior coalition partners the Liberal Democrats, Osborne is also expected to raise the point at which all workers begin to paying income tax -- to around £9,000 (10,800 euros, $14,300) -- by closing tax reliefs and loopholes for the wealthy and increasing levies on property.
The former Labour government had raised the top rate from 40 percent to 50 percent and decided to impose the new level on income earned above £150,000 a year following the financial crisis.
The budget "will be watched closely by the market, ratings agencies and most probably high income earners," said Joshua Raymond, chief market strategist at City Index traders.
"Whilst it is going to be hard to shy away from the politically sensitive elements expected such as a potential reduction in the top tax rate... there are going to be some crucially important elements on which investors will intensely focus, namely revisions to growth estimates, borrowing forecasts and additional measures to help stimulate growth." In its November forecast, the government said Britain's public sector net borrowing would hit £127 billion, or 8.4 percent of gross domestic product (GDP), in the 2011/2012 financial year ending in April.
The Office for Budget Responsibility, acting on behalf of the government, added that state borrowing was predicted to fall to £120 billion, or 7.6 percent of GDP, in 2012/13.
Another measure set to appear in Wednesday's budget include a government plan to issue state bonds, or gilts, lasting 100 years or longer, as the Treasury seeks to lock in historically low interest rates.