UK freezes tax, growth hopes doused
London, October 3, 2011
British finance minister George Osborne confined pro-growth steps to measures including a freeze in the tax households pay for local services on Monday, pinning his hopes for recovery on a resolution of the euro zone debt crisis.
Facing calls across the political spectrum for the government to do more to prop up growth, Osborne's determination to stay the course on fiscal cutbacks adds to pressure on the Bank of England to ease monetary policy further.
"The single biggest boost for British economy that can take place this autumn is nothing I can announce, it is the resolution of the euro crisis," Osborne told BBC Radio 4 ahead of a speech at the Conservative Party's annual conference in the northern English city of Manchester, where fellow Tories and business leaders called for a more coherent growth strategy.
The chancellor urged the European governments to find a solution by the time Group of 20 leaders meet in Cannes in early November.
"If we come out of that meeting with the euro zone crisis still unresolved that would be terrible not just for Britain, not just for Europe, but for the whole world economy," he said.
"This instability is really debilitating."
The Conservative-Liberal Democrat coalition government, in power since May 2010, is slashing spending and raising taxes to virtually eliminate a record budget deficit by the next election due in 2015, leaving next to no extra cash to support a struggling economy.
This leaves the onus to boost growth firmly on the Bank of England, which is widely expected to pump more money into the economy and launch a fresh round of quantitative easing, possibly as soon as this Thursday.
Osborne repeated that erasing Britain's high budget deficit was paramount at a time when highly indebted countries were in the markets' spotlight.
"Our substantial strategy is to deal with Britain's debt in a global debt storm," he said, rejecting calls from within his own party to cut taxes. "I am not a believer in deficit-funded tax cuts," he said.
Osborne's team have been juggling funds to try to help families and businesses cope with rising costs and the spreading economic malaise, although officials admit there is little they can do to stimulate growth immediately.
"I wanted to help families and pensioners with the daily cost of living," Osborne said.
The Conservative head of the influential parliament Treasury committee, Andrew Tyrie, has criticised Osborne for lacking a coherent strategy for growth at a time when concerns are growing that the euro zone debt crisis and the coalition's deficit plan are damaging Britain's economy.
Business groups such as the Institute of Directors have also stepped up calls for further measures to boost growth. "No aspect of economic policy is more important than returning Britain to a growth trajectory," IoD Director General Simon Walker said in a statement, as the group launched its own growth plan, including lower taxes and further spending cuts.
"Without the belief that UK economic growth is expanding, confidence will wane, international investment will dwindle and British consumers and taxpayers will be left picking up the crumbs at the tables of faster growing competitors," he said.
Some analysts also argue that lower growth could derail the deficit reduction plan, but ministers have insisted they will not change course.
The move to freeze the council tax will be funded by using 805 million pounds of money not spent by government departments.
The Conservatives estimate freezing council tax for a second year will save the average household up to 72 pounds a year.
To enable the 2012/13 freeze, which fulfils a Conservative manifesto promise, the government will pay councils the equivalent of a 2.5 percent rise in the tax, and police and fire services will receive the equivalent of a 3 percent rise. - Reuters