LONDON, November 24 – The British government on Monday launched a 20-billion-pound economic stimulus package of tax cuts to get consumers spending again and fight a looming recession.
British finance minister Alistair Darling, said he would slash tax on goods and services, and would help fund the stimulus plan, worth 23 billion euros or 30 billion dollars, by raising the top income tax rate band and significantly increasing state borrowing.
Darling, delivering a key budget report, forecast the economy would shrink in 2009 before recovering in 2010 and said that the Labour government was acting now to allow the country to emerge stronger from the downturn.
Britain\’s economy is teetering on the brink of recession after shrinking in the third quarter of 2008, slammed by the global credit crunch, a slumping property market and chaos on world financial markets.
"I will do whatever it takes to support people through these difficult times and that is why my pre-budget report today contains a substantial fiscal loosening to help the economy now, with a 20 billion pounds fiscal stimulus between now and April 2010," Darling said.
The stimulus package totalled around one percent of Britain\’s total gross domestic product (GDP), he added.
"We need action now to boost economic activity… to help us emerge quicker and emerge stronger from these difficult times," Darling told lawmakers.
Darling, known as the chancellor of the exchequer, forecast that Britain\’s economy would shrink by 0.75-1.25 percent in 2009 due to the chronic global financial crisis. That was a major downgrade from the previous growth estimate of 2.25-2.75 percent given in March.
The forecast for 2008 is for growth of 0.75 percent, while the economy would rebound in 2010 with growth of 1.5-2.0 percent, and would continue to recover in the following years.
"The UK is the world\’s leading financial centre but because of the size of the financial sector, we are likely to be affected more directly by a global financial recession," Darling told lawmakers.
Turning to tax cuts, he said the Labour government would lift the highest rate of income tax to 45 percent from 40 percent to help fund a major economic stimulus package.
The new band, which will be introduced in 2011, will apply to an individual\’s annual earnings of above 150,000 pounds (177,000 euros, 226,000 dollars), Darling told lawmakers.
He also slashed Value Added Tax (VAT) on goods and services to 15 percent from 17.5 percent in a temporary move as part of the stimulus plan to boost the economy.
Darling said that the tax cut was equivalent to giving consumers 12.5 billion pounds.