Britain unleashed a fresh wave of austerity on Wednesday in its latest annual budget and cut its growth outlook citing global markets turbulence rooted in China.
Finance minister George Osborne, presenting his annual tax and spend plans, also warned that a potential ‘Brexit’, or departure from the European Union, would risk damaging the nation’s economic recovery, ahead of a key June referendum.
Chancellor of the Exchequer Osborne said the government would seek additional spending cuts totalling £3.5 billion ($5.0 billion, 4.5 billion euros) by 2020, when it expects also 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 downgrades.
In a speech lasting around one hour, Osborne forecast that the British economy was set to grow by 2.0 percent this year, down from a November estimate of 2.4 percent.
And gross domestic product growth was expected to stand at 2.2 percent next year, down from a prior estimate of 2.5 percent.
Fiscal watchdog the Office for Budget Responsibility (OBR), which compiles official government forecasts, added that the latest predictions were based on the assumption that Britain remained in the European Union.
Osborne, a top figure in Prime Minister David Cameron’s Conservative party and government, meanwhile announced plans to cut several taxes levied on businesses amid strongly divergent views being expressed by companies on whether Britain should quit the EU.
“This is a budget for small businesses,” Osborne told lawmakers to loud cheers from the Conservative lawmakers sat on the House of Commons’ green benches.
There were also tax cuts for the oil and gas industry, which has been hit by tumbling energy prices.
– All eyes on Brexit vote –
Turning to Britain’s June 23 referendum on EU membership, Osborne revealed the OBR’s warning over the potential impact of a Brexit.
And he 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,” Osborne told parliament.
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 — are in the Leave campaign.
“A vote to Leave in the forthcoming referendum could usher in an extended period of uncertainty regarding the precise terms of the UK’s future relationship with the EU,” the OBR argued Wednesday.
“This could have negative implications for activity via business and consumer confidence and might result in greater volatility in financial and other asset markets.”
The OBR added: “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 government would also plough more cash into education and infrastructure projects, in line with announcements made in the run-up to the budget.
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.
Britain will meanwhile impose a tax on excessive sugar levels in soft drinks starting in two years time to cut down on spiralling childhood obesity levels.
The finance minister had received a boost ahead of the budget, as official data showed Britain’s unemployment rate remains at 5.1 percent — the lowest level in a decade.