A better budget

Britain's Labour government set the stage for the coming general election on Wednesday with a revised budget forecast that shaves 11.1 billion pounds (12.4 billion euros, $16.7 billion) off its record deficit. The budget includes a one-off growth package for the economy worth 2.5 billion pounds.

Britain's borrowing for the 2009/2010 fiscal year is still 166.5 billion pounds, or 11.8 percent of its GDP. This is not much less than the 12.7 percent deficit that desperately struggling Greece is expected to reach this year. Last week the European Commission criticized Britain and other major EU powers for being over-optimistic about their deficit reduction chances and set a deadline of 2015 to bring deficits below the EU-limit of three percent.

The Labour Party has said it can halve the deficit in the next four years, but that the economy will remain too fragile for fiscal tightening through this year.

Bonus for house-buyers

Finance Minister Alistair Darling managed to include a few treats for Labour's core voters, scrapping a tax for first-time buyers who buy homes for less than 250,000 pounds. The government will compensate for the cut with a one percent increase to 5 percent in the tax on homes worth more than 1 million pounds.

"The recovery has begun, unemployment is falling and borrowing is better than expected," Darling said, before casting an eye on the upcoming election. He said the choice before the country now was whether to support those whose policies will suffocate the recovery, or a government which has been right about the recession and the recovery.

Prime Minister Gordon Brown's Labour Party remains behind in opinion polls, but has steadily gained on the Conservatives in recent weeks.

Pressure on banks

Darling's budget also included a measure requiring the partially state-owned banks Royal Bank of Scotland and Lloyds to provide 94 billion pounds in new loans to businesses. The government has come under fire from the opposition and parliamentary committees over its handling of bailed-out banks.

A one-time 50 percent tax on bankers' bonuses had raised 2 billion pounds, Darling said, more than twice the government's estimates.

In line with his December forecast, Darling predicted growth of up to 1.1 percent for this year and robust growth of 3 to 3.5 percent for 2011.

But the opposition Conservatives remained deeply unimpressed with Darling's effort. "They are just going to carry on spending, carry on borrowing and carry on failing," said Conservative leader David Cameron. "The biggest risk to our recovery is five more years of this prime minister," he added.

hf/AP/Reuters
Editor: Ben Knight