Osborne also warned that renewed turmoil in the euro area, Britain’s biggest export market, may hurt recovery prospects further.
“I will be straight with the country: another bout of economic storms in the euro zone would hit Britain’s economic fortunes hard again,” Osborne said.
Labour leader Ed Miliband attacked Osborne for imposing four more years of sacrifice on the country, rather than the one further year that had originally been planned.
“This is the chancellor’s fourth budget, but one thing unites them all,” Miliband said. “Every budget he brings to this house has been worse, not better, for the country. All he offers is more of the same. Higher borrowing and lower growth.”
The OBR today raised its deficit forecasts, citing weaker- than-expected tax income. Excluding the transfer of Royal Mail pension assets and payments of coupon income the Bank of England earns on its holdings of government bonds, the deficit will be 120.9 billion pounds ($183.4 billion) in the fiscal year that ends this month, 1 billion pounds higher than it previously forecast.
Over the five fiscal years starting in April, the deficit will total 434 billion pounds, 55.7 billion pounds higher than forecast in December. It means net borrowing will fall from 7.8% of GDP in the current fiscal year to 2.3% of GDP in 2017-18, the OBR said. The structural deficit, currently 4% of GDP, will be eliminated by 2016-17.
The OBR also expects net debt to begin falling in 2017-18, a year later than planned. It’s the second time the debt target has slipped. Net debt will peak at 85.6% of GDP in 2016- 17. The OBR previously put the peak at 79.9% of GDP in 2015-16.
Osborne said corporation tax will be reduced by 1 percentage point to 20% starting in April 2015.
“I want us to send a message to anyone who wants to invest here, to create jobs here, that Britain is open for business,” the chancellor said. “Britain will have a 20% rate of corporation tax -- the lowest business tax of any major economy in the world.”