LONDON (AP) — Britain's Treasury chief George Osborne says the recovery of the U.K. economy is taking longer than he had hoped and warned of more spending cuts to come to get the country's public finances under control.
"It has taken time, but the British economy is healing," Osborne told the House of Commons, though the latest official estimate forecasts a 0.2 percent shrinkage in the economy this year.
Osborne said the paltry recovery in the U.K. and a recession in the 17 European Union countries that use the euro will mean Britain's economy would only grow by 1.2 percent next year, down from the 2 percent it predicted in March.
"It's not the rest of the world's fault, it is your policies which have failed," said Ed Balls, speaking for the opposition Labour Party.
Osborne confirmed that his target for public sector debt to start dropping as a percentage of GDP by 2015-2016 has also been pushed back a year.
"Today was the day (Osborne) started to acknowledge that this is a long-tail recovery rather than a trampoline bounce back to good times," said Scott Corfe, senior economist at the Center for Economic and Business Research.
As a result of the revised forecasts, government spending will be cut a further 1 percent next year and 2 percent the year after. As well as spending cuts, Osborne also announced a cut in tax relief on the pensions of higher-rate tax payers and a cap on welfare payments.
The taxation and spending measures announced Wednesday were forecast to yield an additional 3.9 billion pounds ($6.3 billion) to government income this year. Some 3.5 billion pounds of that sum is expected from a one-time auction of 4G mobile telecoms licenses.
Osborne announced that the government would crack down on tax avoidance, cut corporation tax to from the current 22 percent to 21 percent in 2014-15, increase infrastructure investment by 17 percent and raise tax deductions for capital investment by businesses 10-fold.
Households were promised an increase in the personal exemption from income tax and, for the elderly, a 2.5 percent boost in the basic state pension.
The Treasury also estimates that it will be able to recoup up to 5 billion pounds in lost tax by 2015-16 thanks to a new agreement with Swiss banking authorities.
Osborne also announced several capital investment projects including tax incentives to promote the production of shale gas. At the same time, the Department of Energy and Climate Change announced plans to build more gas-fired generating plants to replace aging coal, nuclear and gas plants. A 1 billion pound loan was also announced to extend the London tube network.
"While the U.K.'s safe-haven status still looks secure, today's statement does nothing to alter the poor fiscal and economic outlook," said Vicky Redwood, chief U.K. economist at Capital Economics.