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Saving the eurozone is key to UK growth: Osborne


Chancellor George Osborne

Chancellor George Osborne

Chancellor George Osborne

Chancellor George Osborne has said taxes will only be cut when the Government can afford to do so in a speech to the Conservative conference.

He said solving the eurozone crisis remains the most important factor in kick-starting growth in the UK.

The Chancellor has been under pressure from Labour to cut VAT to inject money into the economy - and from senior figures in his own party to scrap the 50p top rate of income tax.

He said it would be wrong to borrow money to fund temporary tax cuts or increase public spending.

Mr Osborne did reveal the Government will bypass Britain's foot-dragging banks by injecting tens of billions into struggling small firms in an attempt to head off a "double-dip recession".

After finally losing patience with the banks over their reluctance to lend to businesses, Mr Osborne has announced that the Treasury would underwrite loans for small and medium-sized firms by buying corporate bonds or "business IOUs".

The loans will be cheaper than those offered by the banks.

Aides said the aim was to prevent another credit crunch, but the move also reflects growing fears among ministers that the global economic slowdown could push the UK back into recession.

The Chancellor's aides denied that his "credit easing" proposal amounted to a Plan B on the economy and that his Plan A was not working.

They also insisted that it would not increase Britain's deficit.

Mr Osborne refused to change his cuts strategy, rejecting Tory demands for tax reductions to boost growth and Labour and Liberal Democrat calls for higher spending.

Ten minutes into his address, the rating agency Standard & Poor's confirmed the UK's AAA credit rating, but it warned that the cuts could inhibit growth and was gloomy about growth and jobs.

The Chancellor said: "I don't pretend to you that... there are not difficult days ahead. But together we will ride out the storm and together we will move into the calmer, brighter seas."

His most significant measure was the move to help small firms. Although full details will not be set out until his autumn statement next month, the "credit easing" plan could be implemented by the Bank of England on an emergency basis if the eurozone crisis deepens.

The new scheme may be run by the Bank or an arm's-length body.

The Treasury will create a US-style market but will not "pick winners", as the private sector will vet firms applying for the new loans.

Although the Treasury would be liable if a company defaulted on a loan, officials said any losses would be covered by interest received on other loans.

The move means the Treasury will avoid a difficult annual negotiation over lending targets for the banks, before waiting anxiously to see if they have been met.

Critics said it was a sign that the present agreement, called Project Merlin, had failed.

The Institute for Fiscal Studies warned that the full programme would not boost growth in the short term.

John Walker, national chairman of the Federation of Small Businesses, said: "The credit-easing measure announced today could be a significant development that would open up a new finance stream to viable businesses." Mr Osborne also risked further damaging David Cameron's green credentials by announcing that Britain would not set a higher target to cut its carbon emissions than the rest of Europe.

The Chancellor said environmental laws and rules were adding to the energy bills of households and companies.

"Britain makes up less than 2% of the world's carbon emissions to China and America's 40%. We are not going to save the planet by putting our country out of business," he said.

He provoked more controversy by announcing that people claiming unfair dismissal will have to pay up to £250 to make a claim and a fee of £1,000 or more if there is a full employment tribunal hearing.

The charges, which would be refunded if the employee wins, will also apply to sex-discrimination actions.