A sometimes uneasy coalition government of centre-right Conservatives and more left-wing Liberal Democrats has made erasing a huge budget deficit - which topped 11 percent of GDP before it took office - within the next five years its core objective, and the latest forecasts showed it remained on track.
With no money left to boost an economy that has not fully recovered from a slump caused by the 2007-2009 global crisis, Osborne focused on a flurry of tax measures, some of which represent a major political gamble. In a move that will please his own Conservative party, he cut a 50 percent income tax band for the highest earners to 45 percent, from next year on. The Conservatives say that high a levy is a barrier to aspiration and entrepreneurship. The Labour opposition say it is a fair way to spread the pain.
In a nod to the Liberal Democrats, the junior coalition partner, Osborne raised the threshold at which income tax starts to be paid by more than previously announced to 9,205 pounds ($14,300), taking more poorly paid people out of the tax net. Osborne also introduced a higher 7 percent stamp duty rate on sales of property worth more than 2 million pounds while corporation tax will fall faster and further than announced so far.
"We'll be getting five times more money each and every year from the wealthiest in our society," he said, in a statement the opposition immediately challenged. "What planet are he and the prime minister living on ... how can the priority be a tax cut for the richest one percent," opposition Labour Party leader Ed Milliband said, while trade unions talked of a budget "for the rich by the rich".
GAMBLE Mindful of the risk that heavily indebted Britain could lose its prized top-notch credit rating, Osborne said there was no room to overall soften unprecedented spending cuts, aimed at reducing sky-high debts. A shock jump in public sector borrowing to a record for February, announced ahead of the budget statement, provided a stark reminder that the chancellor of the exchequer has no scope to provide the fragile economy with a significant boost.
"This budget reaffirms our unwavering commitment to deal with Britain's record debts," Osborne said in his budget speech. Despite ongoing risks from the euro zone debt crisis, Britain's economy was set to avoid a renewed recession and growth is expected to pick to a heady 3.0 percent rate by 2015, Osborne said, something many economists view as optimistic.
Ratings agencies have warned Britain that it could be downgraded, with apparently only Osborne's unwavering determination to cut the deficit keeping them onside for now. "It was very much a political exercise and in that regard it will stick in the memory for a lot longer, but not for the macro impact," Alan Clarke, economist at Scotia Capital said. Any hopes for stimulus still rest squarely with the central bank and minutes of its last policy meeting, issued earlier on Wednesday, suggested the chances of more money printing are receding.