Osborne to tax banks, cut 'out of control' spending

UK Chancellor of the Exchequer George Osborne said he’ll raise taxes on banks and savers, while cutting welfare spending in a budget tomorrow that aims to close a record deficit without strangling an economic rebound.

Osborne said yesterday the “pain” of the biggest spending squeeze in 30 years will be spread over the Parliament’s five- year term and that his plans “will put beyond doubt” his resolve to fill the budget hole. Fitch Ratings said June 8 the UK needs to speed deficit cuts to guard its top credit rating.

“The country understands that we can’t go on piling up the debts, we can’t take a ‘manana’ attitude,” Osborne told the BBC yesterday. “The greatest risk to the British economy at the moment is the sovereign debt risk.”

His austerity plan, coming six weeks after the Conservative-led government took office, will set the size of the budget while leaving details of cuts until he maps out departmental plans in the autumn. Osborne said it remains a “good rule of thumb” that spending cuts account for 80 per cent of the consolidation and that tax increases make up 20 per cent.

The independent Institute for Fiscal Studies estimates that Osborne will need to squeeze the budget by $126 billion, equivalent to 5.7 per cent of gross domestic product, to eliminate the shortfall by 2015.

Some economists and opposition parties say current government forecasts of 2.6 per cent growth in 2011 and 2.8 per cent in 2012 may be scaled back as Osborne’s measures suck resources out of the economy. During this year’s election campaign ex-Prime Minister Gordon Brown said immediate spending cuts sought by Conservatives risked a double-dip recession.

Former Bank of England policy maker David Blanchflower said the spending “look certain” to push the United Kingdom back into a recession.

“You can’t just decimate the public sector and assume the private sector will step into the hole,” Blanchflower said in an interview on Bloomberg Television today. “The danger now is we’re certainly going into a double- dip recession. I think that’s absolutely certain given what’s coming,” he added.