Chancellor Osborne aims to keep austerity on track as EU referendum nears

16 Mar, 2016 10:50 am

LONDON – Chancellor George Osborne will try to get his austerity drive – and his own political ambitions – back on track on Wednesday, without upsetting voters before the nation’s EU membership referendum.

Osborne, who portrays himself as an unflinching guardian of the public finances, has slipped from the top of the list of contenders to be Britain’s next prime minister, thanks to a slowing economy and some missteps on his part last year.

Government plans to turn a budget deficit into a surplus by the end of the decade look off course, and on Sunday Osborne said he would need to announce fresh spending cuts in his annual budget statement to parliament, which starts at 1230 GMT.

But with voters split on whether to stay in the European Union in June’s referendum, he is likely to play it safe and delay the extra squeeze on spending until the later years of the decade.

Osborne knows that many Conservative Party supporters are unhappy about his support for Britain’s continued membership of the EU. His main rival for the party’s leadership, London Mayor Boris Johnson, is backing the “out” campaign.

Mindful of the need not to further antagonise Conservative voters, Osborne has signalled he will not pursue his plans to close costly tax loopholes in the pension system for now.

Instead, he may end a five-year freeze on fuel duty, hoping that motorists will not feel it too sharply after the plunge in global oil prices. Shares in insurance firms fell this week on speculation that taxes on their premiums might rise again.

Some sweeteners will be on the table. Osborne said overnight that schools would get extra money to lengthen their day and boost standards, and has announced funding for new rail links in London and northern England.

Osborne also likes to use budgets for surprise moves such as July’s big increase in the minimum wage. But these often soured within days as details of hidden cuts emerged, said former senior civil servant Julian McCrae, now deputy director of the Institute for Government. “The room for political triumphs is reducing, as the fiscal pressure is very real,” he said.

A Reuters poll showed a majority of economists thought the target of a surplus by 2019/20 was likely to be missed and many question whether it is needed at all. Britain’s official budget forecasters could cause further embarrassment for Osborne on Wednesday if they predict he will miss his secondary target of bringing down public debt as a share of economic output each year.

Osborne has been criticised too for sticking to his plans to ease the income tax burden on Britain’s higher earners by raising the threshold at which people start to pay the top rate. “This already challenging fiscal target will be made tougher still if Osborne chooses to prioritise tax cut pledges for higher income households,” said Matt Whittaker, chief economist at the Resolution Foundation think tank. -Reuters

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