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British budget extends austerity, cuts growth outlook
[LONDON] Britain unleashed more austerity on Wednesday in its latest annual budget and cut its growth outlook, blaming the impact of global market turbulence rooted in China.
Finance minister George Osborne also warned that a potential "Brexit", or departure from the European Union, would risk damaging the nation's economic recovery, ahead of a referendum in June.
Chancellor of the Exchequer Mr Osborne said the government would seek additional spending cuts totalling £3.5 billion (S$6.83 billion) by 2020, when it expects to reach a budget surplus despite higher borrowing.
The chancellor pointed to a "dangerous cocktail of risks" including "turbulence in financial markets, slower growth in economies like China, and weak growth in the developed world" for the growth downgrades.
Analysts were meanwhile quick to point out that it was not clear which areas would bear the brunt of the latest cuts.
"How these cuts will be made has not been outlined other than described rather vaguely as savings," said ING economist James Knightley.
"With (government) department budgets already having been cut aggressively it will be interesting to see where new efficiency savings can be made."
In a speech lasting around one hour, Mr Osborne forecast that the British economy was set to grow by 2 per cent this year, down from a November estimate of 2.4 per cent.
Growth was expected to stand at 2.2 per cent next year, down from 2.5 percent.
Fiscal watchdog the Office for Budget Responsibility (OBR), which compiles official government forecasts, said the latest predictions were based on the assumption that Britain remained in the European Union.
Mr Osborne, a top figure in Prime Minister David Cameron's Conservative party and government, also revealed plans to cut several taxes levied on businesses amid strongly divergent views from companies on whether Britain should quit the EU.
"This is a budget for small businesses," Mr Osborne told lawmakers.
There were also significant tax cuts for the oil and gas industry, which has been hit by tumbling energy prices.
Turning to Britain's June 23 referendum on EU membership, Mr Osborne repeated the government's strong desire for the UK to stay within the 28-nation trading bloc.
"Britain will be stronger, safer and better off inside a reformed European Union - and I believe we should not put at risk all the hard work the British people have done to make our economy strong again," Mr Osborne told parliament.
Mr Cameron is leading the battle to keep Britain in the EU, but several key members of his Conservative party - notably Mayor of London Boris Johnson - want to leave.
"There appears to be a greater consensus that a vote to leave would result in a period of potentially disruptive uncertainty while the precise details of the UK's new relationship with the EU were negotiated," the OBR said Wednesday, citing various external reports.
The government will meanwhile plough more cash into education and infrastructure projects.
Mr Osborne approved major railway developments in northern England and in London, and also unveiled a package of extra funding for education, which could see students being made to learn maths until the age of 18, up from 16.
In addition, Britain will impose a tax on excessive sugar levels in soft drinks starting in two years' time to cut down on spiralling childhood obesity levels.
While corporation tax is to be cut, new measures to make multinational companies pay more tax were announced, following a public outcry over revelations that tech giants were paying little by moving profits offshore.
With one eye on the referendum outcome, Mr Osborne avoided traditionally unpopular vote-losing measures, like tax hikes on petrol and beer, and delivered only a very slight increase for tobacco.
"The chancellor had to tread carefully to avoid attracting the wrong kind of attention and undermining the government's popularity in the build up to the EU referendum," noted Scotiabank economist Alan Clarke.