LONDON // Drastic measures, from tax rises to spending cuts, will be unveiled today in an emergency budget cobbled together by the UK's new coalition government in little more than a month. Faced with a national deficit now approaching £180 billion (Dh984bn), George Osborne, the Conservative chancellor of the exchequer, maintains that wholesale changes are necessary because Britain will be "on the road to ruin" without them.
Already dubbed "the bloodbath budget", union leaders are forecasting strikes if the cuts result in the tens of thousands of job losses they fear, and the prospect of industrial strife unseen since the 1970s. Alistair Darling, the chancellor until Labour lost last month's election, is also warning that by implementing cuts that are too deep, too soon, the new Conservative-Liberal Democrat government will put at risk the nation's fragile recovery.
But Mr Osborne insists that tough action is unavoidable because he inherited "a truly awful financial situation". He told the BBC: "I think the country understands that we can't go on piling up the debts. "We have inherited a truly awful financial situation ? and unless we take the determined and concerted action to deal with that, then I am afraid we will find our country on the road to ruin. "We will find higher interest rates, businesses going bust, unemployment rising and our living standards declining. I am not prepared to put up with that."
Economists at JP Morgan expect about £28bn of new fiscal tightening measures, with at least half of that total in place by the end of the 2011-12 financial year. The value added tax, the government's sales tax, is expected to be increased from 17.5 per cent to 20 per cent, though the rise will probably be delayed until next year. Millions of public-sector workers are likely to have their pay frozen for at least a year. On top of that, six million government employees will see a steep rise in the contributions they make to their "gold-plated" index-linked pensions, which normally pay two-thirds of final salary when they retire.
Councils are expected to be ordered to freeze the level of taxes they levy for local services. There will also be a "super-tax" levied on banks and a steep rise in capital-gains tax. Although the budget also looks like implementing a rise in National Insurance contributions paid by all workers and their firms, it also seems set to introduce breaks for new businesses and small companies outside the south-east of England.
About two million families on middle incomes will lose child benefits as part of a wider crackdown on welfare payments, which will see key benefits frozen or cut. "We have to tackle this welfare bill. It has got completely out of control in recent years. What I want to do is reward work," said Mr Osborne. "It is completely unacceptable that we condemn five million people in this country to a life on out-of-work benefits."
Mr Osborne said that, given Britain's record deficit, today's budget was "unavoidable". But he added: "What I am determined to do is make sure the measures are tough but they are also fair and that we are all in this together." However, Mr Darling reiterated his warning that the new government was moving too fast and could "crush" the fragile economic recovery. "No one's arguing about whether you get the deficit down, what they are arguing about is policies that go further and faster, ones that appear to be driven by an ideological war against the public sector," he said.
"My worry is that they seem to be oblivious to the fact that if you cut and you don't have a counter-balancing strategy for growth, you will get into the problems that we're now beginning to see in Europe." Asked about Mr Darling's comments, a spokesman for the prime minister, David Cameron, said yesterday: "The prime minister has been very clear that the priority at this present time is to tackle the deficit.
"That is not driven by ideology. It is driven by where we are and what we have to do. We have a very large structural deficit, estimated to be 8.8 per cent of GDP, and we've got to do something about that." The government also took some wind out of the opposition's sails yesterday by successfully recruiting John Hutton, a former Labour Party cabinet minister, to chair a commission looking at ways of reforming the "unsustainable" bill for public-sector pensions.
John Prescott, deputy prime minister in the Labour government, vented his fury on his website, branding Mr Hutton a "collaborator". Mr Prescott said on his blog: "They've now turned a Con-Lib government to a Con-Lib-Lab one and made themselves human shields for the most savage and heartless Tory policies in 20 years." dsapsted@thenational.ae