British Prime Minister David Cameron ruled out big tax cuts at next month’s budget, confirming in a newspaper interview yesterday that his focus remained on reducing Britain’s budget deficit.
Cameron’s Conservative party and their Liberal Democrat allies set out a five-year plan to almost eliminate Britain’s budget deficit in an emergency budget in June last year.
Sales tax rose at the start of the year and an increase in payroll taxation will come into effect in April, and some legislators on the right of Cameron’s party are upset he has not made a clear commitment to cutting taxes in future years.
“I would love to see tax reductions. I’m a tax cutting Tory [Conservative] and I believe in tax cuts, but when you’re borrowing 11 percent of your GDP, it’s not possible to make significant net tax cuts. It just isn’t,” he told the Sunday Telegraph newspaper.
“It’s no good saying we’re going to deal with the deficit by cutting spending, but then we’re going to make things worse again by cutting taxes. I’m afraid it doesn’t add up,” he said.
Separately, a report in the Sunday Times newspaper said that Britain’s finance ministry was looking at reducing tax breaks for people who are resident in Britain, but claim their main financial interests remain overseas. So-called “non-domiciled” taxpayers avoid paying tax on money earned from overseas work and investments.
However, doubts are growing in the UK over Cameron’s strategy to restore growth by cutting spending, amid a stream of worrying economic data and an increasingly hostile public.
The surprise announcement last month that the economy shrank by 0.5 percent in the fourth quarter of last year sparked national concern just as ordinary Britons were beginning to feel the effect of a major austerity drive.
Cameron wants to save more than ￡80 billion (US$130 billion) during the next four years to reduce the budget deficit and the consequences are being played out in vivid detail in the press.
Tales of support for disabled people being slashed, trash collections being scaled back to once every two weeks, library and bus services being scrapped and the even the national forests being rented out are all eroding support.
A recent YouGov poll found that public approval for the coalition’s strategy had fallen from 53 percent in June last year — a month after the government took power — to 38 percent now. About 57 percent in the poll said the cuts were being imposed unfairly.
Surveys also show consumer confidence in the economy has fallen to its lowest monthly figure in almost 20 years.
This only adds to the anxiety caused by soaring inflation and rising unemployment — the jobless rate among young people is at a record 20 percent — while the number of people declared insolvent hit a 40-year high last year.
Other voices are also calling for the government to prepare a “Plan B” in case the economy takes a dive, with the Financial Times among those urging Chancellor of the Exchange George Osborne to be flexible.
In related news, the British Chambers of Commerce (BCC) said the Bank of England should keep its key interest rate on hold this week as the UK recovery remains “fragile.”
“Positive news should not lull us into a misguided sense of complacency,” BCC chief economist David Kern said in an e-mailed statement from London yesterday. “The economy is still fragile.”
Manufacturing and services reports this month indicated the UK recovery may have reignited after the economy contracted in the fourth quarter. While inflation is almost twice the central bank’s 2 percent target, the BCC said raising the benchmark interest rate “risks derailing the recovery.”
The bank is due to announce its policy decision on Thursday at 12pm.
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