LONDON — Britain is on the verge of slipping back into recession, it has seen its top AAA credit rating cut, and living standards have dropped under the impact of austerity measures.
Even so, Treasury chief George Osborne is expected to cling to his message of tax hikes and spending cuts when he delivers his budget today, warning that failure to reduce borrowing could leave Britain in the same state as Cyprus or Greece.
Prime Minister David Cameron has said such debt reduction measures, which have the nasty side-effect of hurting economic growth, are the way forward. There's no indication that anyone has changed their minds.
“Today I'll present a Budget that tackles the economy's problems head on, helping those who want to work hard and get on,” Osborne said today on his Twitter page.
Government cutbacks, financial troubles among key trading partners in Europe and difficulties in restructuring the banking industry have held Britain back. Economic forecasts give Osborne little room to maneuver, with sluggish growth likely to reduce tax revenues.
The economy shrank by 0.3 percent in the last three months of 2012, with predictions of another contraction in the first quarter of 2013. That would put the U.K. back into a recession — technically defined as two consecutive quarters of economic contraction — for the third time in about four years.
Osborne has signaled that some government departments will be ordered to free up 2.5 billion pounds ($3.77 billion) that will be diverted to infrastructure projects, including public housing.
The Conservatives’ coalition partners, the Liberal Democrats, have been pushing for more projects funded by borrowing in a hope of supporting economic growth.
Just hours before the key speech, unemployment data offered still more bad news, with joblessness increasing by 7,000 between November and January to 2.52 million. The increase was caused by more 18-24 year olds becoming unemployed. The rate remained at 7.8 percent, compared with 8.3 percent a year ago.
In a reminder of the struggles the austerity programs have brought, thousands of public workers have gone on strike, and will be picketing as Osborne delivers his speech in the early afternoon.
The Trade Union Conference, an umbrella organization for unions with 6.2 million members, said the increase in capital spending that is expected to be presented in the budget isn't enough to kick-start the economy, boosting growth by just 0.06 percent.
The opposition, headed by Labour Party leader Ed Miliband, argues it is time to change course.
“The government is borrowing over 200 billion more than he had planned,” Miliband said. “Why? Because it's paying for failure, its failure to get growth moving. And it's also making Britain's families pay for that failure.
“We need a change of course from George Osborne today. What we don't need is him saying I'm going to stick to my failed plan.”