UK hopes to 'balance its books' in 5 years

S Kalyana Ramanathan / London June 23, 2010 The first budget of the Conservative-Lib Dem government has promised to cut the structural budget deficit to zero in the next six years. Chancellor George Osborne, in his budget speech before the House of Commons today, said, “The formal mandate we set is that the structural current deficit should be in balance in the final year of the five-year forecast period, which is 2015-16 in this budget.” “Some have suggested that there is a choice between dealing with our debts and going for growth. That is a false choice,” Osborne added. Quoting the growth rate forecast by the Office for Budget Responsibility after taking into account the measures in the new budget, Osborne said the UK economy is estimated to grow by 1.2 per cent this year and 2.3 per cent next year. He further predicted that the UK economy will grow by 2.8 per cent in 2012 followed by 2.9 per cent in 2013 and by 2.7 per cent in both 2014 and in 2015. Consumer price inflation is expected to reach 2.7 per cent by the end of the year before returning to target in the medium term. He also confirmed that the inflation target remains at 2 per cent as measured by the Consumer Prices Index. The unemployment rate by the Office for Budget Responsibility is expected to peak this year at 8.1 per cent and then fall for each of the next four years, to reach 6.1 per cent in 2015. If Osborne’s prediction on the budget deficit succeeds by 2016, he would have achieved it five years before the previous Labour government’s estimated target. According to the latest budget, total borrowing is expected to fall to 2.1 per cent of GDP by 2015, and reach 1.1 per cent by 2016. Current borrowing stands at £155 billion or around 11 per cent of the GDP. UK’s current debt, which is estimated at 62 per cent of GDP, is expected to peak at 70 per cent in 2013-14, before falling to 67 per cent by 2015-16. “This emergency Budget deals decisively with our country’s record debts. It pays for the past. And it plans for the future. It supports a strong enterprise-led recovery. It rewards work. And it protects the most vulnerable in our society. Yes it is tough; but it is also fair,” Osborne said at the start of his maiden budget speech. However, the increase in value added tax from 17.5 per cent to 20 per cent in January 2011 was a damper. The British Retail Consortium, the lobby for the retail industry said, “The Chancellor is right to use public spending cuts as the main means for addressing the deficit but the VAT increase is disappointing.” Starting from January 2011, UK will also impose a new bank levy and in full year of implementation the government hopes to raise £2 billion additional revenue through this new levy.