Britain's Osborne to cut spending further to protect budget plan

Chancellor of the Exchequer George Osborne addresses the Conservative party conference in Birmingham, England.
Matt Cardy | Getty Images
Chancellor of the Exchequer George Osborne addresses the Conservative party conference in Birmingham, England.

British finance minister George Osborne said on Sunday he would announce further cuts to public spending this week to protect his austerity plan from a weakening of the economy, but said they would not be drastic.

Osborne said the world was facing its most uncertain time since the 2008-2009 financial crisis due to China's slowdown, the oil price fall, interest rate changes in some countries and political instability in the Middle East.

"In short, the hopes of a stronger global recovery have evaporated," he wrote in the Sun on Sunday newspaper before an annual budget announcement on Wednesday.

Osborne said a decision by Britain to leave the European Union in a referendum in June would also add to uncertainty.

"An exit from the EU would create an economic shock, it would cost jobs, damage living standards and it would represent a big leap in the dark," he said in an interview on BBC television.

A candidate to replace Prime Minister David Cameron as head of the Conservative Party, Osborne has sought to establish a reputation for fiscal discipline by aiming to turn Britain's budget deficit into a surplus by the end of the decade.

But that plan may be knocked off course by a slowdown in Britain's economy which grew by 2.2 percent in 2015, weaker than growth of 2.4 percent pencilled into the government's latest budget projections.

With opinion polls showing voters divided almost 50-50 over whether to stay in the EU, Osborne appears to have shied away from taking radical measures in his budget. Plans to overhaul the pension system, which could have raised billions of pounds to help fix the budget deficit, have been put on hold.

Osborne said on Sunday his budget statement would include action to ensure Britain stuck to his plan to fix its still weak public finances.

He said the extra spending cuts were equivalent to 50 pence in every 100 pounds that the government spends by the end of the decade. "I think we can find those savings. It's not a huge amount in the grand scheme of things," he told the BBC.

Osborne declined to comment when asked whether he might seek to raise more tax revenue by ending a freeze on the level of duty levied on fuel sales, an option widely seen as feasible given the plunge in oil prices which has helped motorists.

Many economists have questioned Osborne's pursuit of a budget surplus and have warned that cutting spending now might aggravate the slowing of Britain's economy.

Capital Economics, a consultancy, said last week that Osborne might announce spending cuts for the later part of the decade so as not to hurt growth in the short term.