George Osborne laid the groundwork for his Wednesday statement, warning that Britain must “act now rather than pay later”. He revealed that he needs to find additional savings equivalent to 50p of every £100 of government spending by 2020, reports The Times.
Mr Osborne insisted that the cuts were “not a huge amount in the scheme of things”. “We have got to live within our means to stay secure and that’s the way we make Britain fit for the future,” he told The Andrew Marr Show on BBC One.
The additional savings, which are likely to total £4 billion, are needed to keep Mr Osborne’s deficit reduction strategy on track in the face of weaker than expected economic growth. He must raise revenue to plug an £18 billion “black hole” in the economy.
He has pledged to achieve a budget surplus by 2020. Last month the Institute for Fiscal Studies warned that this target could box him in.
A leading economics forecasting group warned yesterday that cuts to government spending would put the UK at risk of slumping back into a downturn. In a report on the state of the economy ahead of a crucial budget in which Mr Osborne’s own forecasts look to be unravelling, the EY Item Club said that the chancellor must not engage in “bad economics” by announcing further austerity measures to hit his target.
“The chancellor has spoken before about fixing the roof while the sun shines,” Martin Beck, senior economic advisor to the EY Item Club, said. “But, with storm clouds gathering over the UK economy, tightening fiscal policy further could worsen an already fragile economic situation. Now is not the time to be fixing the roof.”
Yesterday the chancellor pointed to the “gloomier global picture” as a factor slowing growth in the UK. China’s slowdown, the fall in oil and commodity prices, and instability in the Middle East made for a “dangerous cocktail of risks”, he said.
Voters should expect “bold decisions” in his eighth budget: “We’re going to need to look for more savings in the public spending, so the country lives within its means.”
Expert predictions for revenue raising measures include a hike in the tax on insurance premiums, which would hit millions of families insuring everything from their car to their house. An increase in so-called sin taxes, including an extra 16p on a pack of cigarettes, has also been mooted.
It also emerged yesterday that the government was set to crack down on TV presenters and public-sector chiefs being paid through personal service companies and potentially avoiding tax.
Possible giveaways include an increase to the personal allowance and the higher-rate tax band threshold.
Ken Clarke, the former Tory chancellor, urged Mr Osborne to carry out “tough and difficult” measures.
“Markets are very jittery and if you look at the biggest problem in the short term in Britain, it is that we are still running a deficit and we are still piling up debt and that slows down the prospects of growth,” Mr Clarke told Sky News.
“George has got to get on with that and this is the first budget in a five-year parliament so, if I were him, I’d want to do some of the tough and difficult things now.”
•Labour said last night that three in four working families claiming tax credits would have their benefits slashed under the government’s welfare reform. Analysis commissioned by Labour shows that 2.3 million of the 3.1 million families on tax credits will see their in-work support fall as they are moved to Universal Credit, the government’s new welfare system.
The claim goes against a guarantee by Iain Duncan Smith, the work and pensions secretary, that “nobody will lose any money on arrival on universal credit from tax credits.” A Department for Work and Pensions spokesperson said: “For many claimants a move to Universal Credit will actually mean that they receive the same or higher amount of benefit than they do from the current benefit system.”