A levy on banks, including foreign banks operating in Britain, a sharp increase in VAT and deep cuts in public services and benefits marked the new government's first budget, announced on Tuesday, aimed at eliminating its record £155-billion budget deficit over five years.
The “emergency” budget, representing the biggest package of cuts and tax rises in a generation, was denounced as “pure Tory” by critics alluding to the destruction of public services under the former Tory Prime Minister, Margaret Thatcher, in the 1980s.
Controversially, it reverses the previous Labour government's policy of increased public spending to get the country out of recession.
Liberal Democrats, who had backed “fiscal stimulus” in opposition, were accused of “selling out” to the Tories as a price for sharing power with them. Their leader and Deputy Prime Minister, Nick Clegg, however, insisted that the budget bore “the stamp of our Liberal Democrat values”.
In a symbolic move that might offer little comfort to millions of Britons who face job losses and reduced benefits as a result of the proposed sweeping cuts to government expenditure, the Chancellor George Osborne did not spare the Queen either.
Evoking his party's new-found spirit of “we-are-in-it-together” to deal with the worst post-War economic crisis, Mr. Osborne froze the annual £7.9-million payment to the royal family, apparently disregarding off-stage noises from the Palace. He also announced that in future, the government expenditure on the royal household would be subject to scrutiny, by the National Audit Office declaring that the pain of his austerity measures would be shared by “everyone''.
Mr. Osborne, Britain's youngest Chancellor in living memory, also announced a two-year wage freeze for public sector workers earning over £21,000 a year and cuts to a range of benefits including family tax credits and housing benefits. There will be a freeze on child benefits for three years.
The proposed bank levy, which is expected to raise £2-billion a year when it is fully in place, is likely to be controversial as many countries, including India, are wary of it. Details of the levy, to be introduced next year, will be watched with interest.
Labour called the budget “reckless'' saying it would stifle growth and “throw people out of work''.
Mr. Osborne insisted that the measures were needed to avert a “catastrophic collapse'' in economic confidence.
