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Britain unveils budget with deep cuts and tax increases

Chancellor of the Exchequer George Osborne’s budget box, which dates to 1860, contains a package of spending cuts and tax increases that will be worth $188 billion a year by 2014-2015.

Associated Press

Chancellor of the Exchequer George Osborne’s budget box, which dates to 1860, contains a package of spending cuts and tax increases that will be worth $188 billion a year by 2014-2015.

LONDON — Britain's new Conservative-Liberal Democrat government on Tuesday unveiled the country's most painful budget in a generation, outlining a program of deep spending cuts and tax hikes in line with the mood of public austerity sweeping across Europe.

George Osborne, chancellor of the exchequer, said drastic measures affecting everyone were unavoidable to mollify jittery investors and tackle Britain's biggest national deficit since World War II. The emergency budget calls for increases in sales and capital gains taxes and reductions in welfare benefits to help erase the deficit within six years.

"Unless we deal with our debts, there will be no growth," Osborne told lawmakers in Parliament. "A credible plan to cut our budget deficit goes hand in hand with a steady and sustained economic recovery with low inflation and falling unemployment."

Britain's decision to cut spending comes at a time when governments around the world are trying to decide whether to continue stimulating their economies out of sluggish growth or begin paring back their rising debt levels. Last week, President Barack Obama wrote a letter to fellow leaders from the Group of 20 nations, who are meeting this weekend in Toronto, warning them against slashing programs designed to stimulate economic recovery.

The finance minister's budget suggested that Britain was not moved by his plea.

The government's emergency budget contains a package of spending cuts and tax increases that will be worth $188 billion a year by 2014-15. Osborne said about $145 billion of those savings will come from cuts to public sector spending and almost $43 billion will come from tax increases.

The ax will fall on various social welfare benefits, including a controversial three-year freeze on child benefits, a cap on housing benefits and means testing for disability allowances.

Osborne also announced a two-year freeze on public-sector salaries above about $31,000 a year and a sped-up timetable for raising the retirement age to 66 and reductions in certain welfare benefits.

Other announcements include an increase in Britain's value-added tax, from 17.5 percent to 20 percent, effective January next year despite declarations by both the Conservatives and the Liberal Democrats during last month's election campaign that they opposed an increase in the sales tax.

Information from the Los Angeles Times and Washington Post was used in this report.

Britain unveils budget with deep cuts and tax increases 06/22/10 [Last modified: Tuesday, June 22, 2010 11:02pm]
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