UK Cameron's party pledges budget surplus if it wins election

Reuters News
Posted: Sep 30, 2013 12:34 PM
UK Cameron's party pledges budget surplus if it wins election

By Guy Faulconbridge and Andrew Osborn

MANCHESTER, England (Reuters) - Finance minister George Osborne promised he would continue to cut spending to wipe out Britain's budget deficit if the Conservatives won the 2015 election, but signaled there could be more money for infrastructure investment.

At an annual conference where the Conservatives are setting out policy ideas before the election, Osborne said he would return Britain to a budget surplus during the next parliament, as long as the country's economy continued to mend.

"When we've dealt with Labour's deficit, we will have a surplus in good times as insurance against difficult times ahead," Osborne said, referring to the large shortfall in Britain's public accounts at the time of the 2010 election.

"And provided the recovery is sustained, our goal is to achieve that surplus in the next parliament."

Osborne's original plans to fix Britain's public accounts have been pushed back as the economy grew much more slowly than forecast in recent years.

When the Conservatives ousted Labour from power in 2010, Osborne said he would work over the five-year parliament to nearly eradicate the current budget deficit as measured in cyclically adjusted terms - which do not include the effects of swings in the economy or investment spending.

Those plans are now running behind that schedule.

In his speech on Monday, Osborne adopted a new target, saying he would aim for a budget surplus in absolute terms - including investment and economic swings - during the next parliament which is scheduled to run until 2020.

Carl Emmerson, deputy director at the Institute for Fiscal Studies, a think-tank, said the deficit by that measure was forecast by Britain's official budget watchdog to be 42 billion pounds ($67.7 billion) in 2017-18, the last year in its forecasting period.

With the economy now showing signs of recovery, rising tax revenues and lower welfare bills could leave the structural part of the deficit at 12 billion pounds - or 0.6 percent of gross domestic product - by 2017-18, which Osborne would need to close in the following years to meet his new target.

"In normal times that would look like a large but achievable number. In the current climate, it's worth stressing, it's a lot less than the current rate of austerity," Emmerson said.


Osborne's plan depends on his party winning the next election. One opinion poll on Sunday said it was 11 percentage points behind the opposition Labour party.

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It would also be largely reliant on the ability of a re-elected Conservative government to stick to tough austerity targets it has already announced for the years up to 2017-18.

In his speech, Osborne proposed tougher new rules for people claiming jobless benefits and said that by spending less on welfare and routine costs, a new Conservative government would pave the way for lower taxes at some point in the future.

He also said a new Conservative government would aim to increase investment spending by at least the same pace as economic growth if it won the 2015 election.

The Labour party has criticized Osborne for not spending more on infrastructure. The International Monetary Fund added to the pressure in May, saying that bringing forward capital spending would help the economy out of its post-recession stagnation, although a recovery has accelerated in recent months.

Osborne said he would spell out his future public finance policies in detail next year.

(Writing by William Schomberg; Editing by)