Cuts coming despite £11bn borrowing fall
Chancellor's economic optimism fails to quell anxiety over deficit
Chancellor Alistair Darling yesterday stood by his forecasts for the economy's return to growth this year and said the Government would not have to borrow as much as expected to shore up the UK's finances.
Delivering his third - and possibly final - Budget in the House of Commons, the Chancellor said that stronger than expected tax receipts and lower than feared unemployment meant that Government borrowing would be £167bn this year down £11bn from the £178bn he predicted in the Pre-Budget Report (PBR) in December.
Mr Darling also said the debt would continue to fall faster than previously forecast - dropping to £74bn in 2014-15 - and confirmed the goal of halving the deficit within four years.
"The task now is to bring down borrowing in a way which does not damage the recovery or the frontline services on which people depend," he said.
Mr Darling was on his feet for 59 minutes, during which time he was met with jeers from the opposition benches over several measures.
The Chancellor said he was standing by his forecast that the economy would grow by 1% to 1.5% this year although he slightly downgraded his prediction for next year to 3% compared to the 3.5% in the PBR.
He also said the Government expected inflation - which was earlier this week confirmed at 3% - to fall back below the Bank of England's target level of 2% next year.
Business organisations said Mr Darling could have done more to set out a clear plan for reducing the budget deficit.
CBI director-general Richard Lambert said: "With the election just weeks away, this was a clever, political Budget. However, anxiety remains on how the deficit is going to be paid down, and the growth forecasts for 2011 and beyond are still on the optimistic side.
"It is the fiscal decisions over the next 12 months that will really determine the UK's economic future."
As expected with the General Election so close at hand, Mr Darling said that it would be "wrong" and "dangerous" to start cutting public spending too quickly, but conceded the Government's next spending settlement would be the toughest for decades.
Bank of Ireland economist Alan Bridle said the lack of clarity left a lot of questions for the Northern Ireland Executive over expenditure.
"With spending plans broadly unchanged for 2010/11, today's Budget leaves us no wiser on the detail of the certain spending squeeze and we will have to wait for the next Comprehensive Spending Review post election," he said.
However, he added that policies adopted by Labour in the rest of the UK such as public asset sales and public sector jobs, pay and pensions cuts would come on to the local agenda as Stormont looks to rise revenues and cut the costs of public administration.
While there were no changes to national insurance, VAT, income tax or corporation tax, the Budget contained a number of measures designed to boost the economy.
These included a one-off £2.5bn support package for small businesses funded largely by the £2bn raised from taxes on banker bonuses, a freeze on inheritance tax thresholds to fund long-term care for the elderly, and a stamp duty exemption for first time buyers up to £250,000 funded by raising stamp duty of residential properties over £1m.
The Chancellor also said VAT receipts had come in £3bn ahead of hopes, while higher profits had cushioned the fall in the corporation tax take.
UK dole queues meanwhile are well below the levels originally feared at the height of the recession, which means income tax revenues are higher.
He also said that departments will publish details about how to achieve £11bn of new savings.
"Today's Budget was a classic example of 'Robin Hood' economics in practice," said Ulster Bank economist Richard Ramsey.
"The Stormont Executive should take note of the principle that lies behind these initiatives. After the election, Northern Ireland will have to deliver its own fiscal austerity package and economic development strategy. Robin Hood economics needs to lie at the heart of such strategies."
The Chancellor said the Government's 50% bank bonus tax had already raised £2bn for the UK public purse, far more than the £550m originally expected.
In pledging to recover money forked out by taxpayers to help the bailed-out banking sector, Mr Darling added that more than £8bn in fees and charges had been received from banks in return for support during the financial crisis.