Chancellor of the Exchequer George Osborne said it’s taking longer than planned to balance Britain’s public finances, the first indication that his austerity program will roll on for another year.
The comments suggest his 2010 plan to eliminate the bulk of the budget deficit in time for the 2015 general election may be extended until 2018, the second time Osborne has had rethink his initial plan. The Chancellor will update Parliament with the government’s latest economic and fiscal forecasts on Dec. 5.
“It’s clearly taking longer to deal with Britain’s debts, it’s clearly taking longer to recover from the financial crisis than anyone would have hoped,” Osborne told BBC1 Television in London today.
The deterioration in the fiscal position leaves Osborne exposed to further political attack from the opposition Labour Party, which says fiscal retrenchment is self defeating during a period of weak economic growth. Investors in financial markets may be more forgiving for a second breach, with many preferring more slippage over fiscal constraints on growth.
Osborne refused to spell out whether the Office for Budget Responsibility, which prepares forecasts for the Treasury and judges whether the Chancellor is sticking to his targets, will say he has missed both targets to have debt falling as a share of national income by 2015 and balance the current budget. Instead, he said, that as “a general observation” there would be a delay.
Osborne said the prolonged fiscal retrenchment would have to be spread fairly across society, with the richest shouldering most of the burden and those on welfare also helping in the effort. He ruled out a so-called “mansion tax” and said he’d beef up resources at the tax collection agency to chase evasion among multinational companies operating in the U.K.
“I am very clear going forward: we have got to deal with this deficit and it is going to take longer, that means more difficult decisions and it’s got to be done fairly that means, yes, the richest have to bear their share and they will -- that does mean more than they are paying at the moment,” Osborne said. “We are also going to tackle welfare bills.”
Osborne will increase taxes on pension savings of the wealthiest, the Sunday Telegraph reported today.
The budget deficit is on course to overshoot the 120 billion pounds ($192 billion) forecast by the OBR in March. In the first seven months of the fiscal year, the deficit climbed to 73.3 billion pounds from 68.3 billion pounds a year earlier.
Based on current trends and stripping out accounting changes that would flatter the figures, the full-year deficit is projected to be 125 billion pounds, although it may be higher as government spending usually picks up toward the end of the year. That’s above the 121 billion pounds in the fiscal year that ended in March.
“He’s failing because this year, the borrowing is going up, not down,” said Ed Balls, who shadows Osborne in Parliament for the Labour Party.
The OBR will also say whether Osborne has a realistic chance of meeting his target to start reducing debt as a share of the economy by 2015. Net debt climbed to 1.07 trillion pounds last month, or 67.9 percent of gross domestic product, the statistics office said.
Economists say Osborne may just achieve that goal after the Bank of England agreed this month to transfer 35 billion pounds of cash accumulated under its bond-buying program to the Treasury by April 2014.
“Provided market participants don’t dwell too heavily on the ‘accounting conventions’ and ‘cash-management efficiency’ measures, gilts should remain a relative safe haven, though they have lost some of their luster,” said Ross Walker, chief U.K. economist at Royal Bank of Scotland Group Plc in London.
Osborne should abandon his debt target rather than risk damaging the economic recovery by introducing new austerity measures, according to a Bloomberg News survey of economists.
All except one of 18 economists polled between Sept. 21 and Sept. 28 said missing the goal of starting to bring down government debt as a share of output by 2015-16 is preferable to extra spending cuts at a time when the economy is mired in recession. Most said further austerity would alarm investors more than letting the debt target go, which may risk the U.K.’s top credit rating.
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