LONDON – Austerity will remain in place in Britain for years to come, the government insisted Thursday even though the U.K. economy is growing faster than most of its peers.
That was the message from British Treasury chief George Osborne as he unveiled his latest tax and spending plans. Despite painting a brighter economic picture and even suggesting that the country could be running a budget surplus by the end of the decade, there were few giveaways to hard-pressed households up and down the land.
Osborne cautioned that the public coffers remain strained and that the country will have to wait longer to see an end to the years of austerity. He pledged to “fix the roof while the sun is shining” even when the budget is expected to turn a small cash surplus in 2018-19.
“The hard work of the British people is paying off and we will not squander their efforts,” he told a boisterous House of Commons during his Autumn Statement.
Though Britain’s recovery from the savage 2008-9 recession has generally been muted, it is currently doing better than most other major economies around the world — its quarterly growth rate of 0.8 per cent in the third quarter is better than Germany’s 0.3 per cent and the European Union’s 0.2 per cent.
Osborne said the British economy is expected to grow 1.4 per cent this year instead of the previous forecast of 0.6 per cent. Next year, growth is forecast to be even stronger at 2.4 per cent against 1.8 per cent.
But Osborne insisted there was more to do to repair the damage to the public finances wrought by a banking sector collapse and the country’s deepest economic recession since World War II.
He outlined more measures to get the British public finances into better shape in the years to come.
One notable announcement was an earlier-than-planned increase in the state pension age to 68 for most of those currently in their 40s. In addition, he announced a capital gains tax on overseas buyers of property, quickly dubbed the “oligarch tax” by British media.
Osborne did offer some concessions such as measures to curb energy bills and extending a free school meals program for children up to 7 years old.
Overall, the measures announced were fiscally neutral and markets were little changed.
The measures on energy in particular come in response to attacks from the opposition Labour Party, which argues that the Conservative-led government is presiding over a recovery that is only being felt by a few, mainly the rich in and around London. Earlier this year, Labour leader Ed Miliband promised to freeze energy prices for 20 months if he wins the next general election, scheduled for May 2015.
Labour’s finance spokesman Ed Balls continued the attack in his response to Osborne, arguing that the government’s austerity medicine has held back the British economy and that the recovery from recession is the slowest in a hundred years.
“For all his boasts and utterly breathtaking complacency, the chancellor (Osborne) is in complete denial which is defining this government in office, that under this chancellor and prime minister, for most people in this country, living standards are falling for year on year,” he said to approval of the Labour benches.
Despite the improving outlook for the U.K. economy, which is Europe’s third-biggest behind Germany and France, much of the country is still seeing a squeeze on living standards with wages, more often than not, being outstripped by price rises, particularly with regard to energy costs.
Public health experts criticized the government earlier this week in a letter to the British Medical Journal, saying rising food prices are cutting the caloric intake of poor children, creating a situation that “has all the signs of a public health emergency.” The Trussell Trust, a charity that operates food banks nationwide, has warned that with winter approaching, the worst may be yet to come.
The coalition government, which was formed in 2010, insists that its strategy for dealing with Britain’s debt is the right one and that a failure to get the public finances into shape will spell more misery. Measures taken over the past few years include cuts in welfare payments as well as increases in the pension age.
Osborne pointed to the latest forecasts as evidence the strategy is working. He said the country’s debt burden should start falling as a proportion of national income by 2016-17 after peaking at 80 per cent of annual gross domestic product the year before.
While Osborne was delivering his statement, the Bank of England, as expected, kept its main interest rate unchanged at the record low of 0.5 per cent and refrained from injecting more money into the U.K. economy.