London - The British coalition government unveils its third
austerity budget in a row on Wednesday to cut a huge deficit but was
expected to lower the top rate of income tax for the highest earners.
Finance minister George Osborne presents his annual
2012-2013 budget to the nation at 12:30 GMT, and with many of its key
announcements already leaked, market focus will be on changes to the
Treasury's growth and deficit targets.
Osborne, the Chancellor of the Exchequer, has spoken of
the need for the coalition government to stick firmly to its policy of
slashing the deficit, especially since Britain is at risk of returning
to recession this year.
Just last week, Fitch warned that Britain's gold-plated
AAA credit rating was increasingly at risk and placed the country on
"This is a just another warning to anyone who believes
there can be deficit-financed giveaways in (the) budget," the Treasury
said in response.
Britain's Conservative-Liberal Democrat government has
implemented huge public spending cuts and tax rises to slash a record
deficit inherited from the previous Labour administration in 2010.
And the coalition is eager to preserve Britain's
valuable AAA credit rating, that keeps state borrowing costs low, and
avoid a Greek-style sovereign debt crisis.
Ahead of Wednesday's budget, British media reported
that Osborne would cut income tax for the highest earners from 50% to 45%, or to 45 pence to the pound.
Osborne, presenting his third budget, has reportedly
faced fierce pressure from the right wing of his Conservative Party and
from business leaders to slash the top rate to help stimulate British
In a bid to appease junior coalition partners the
Liberal Democrats, Osborne is also expected to raise the point at which
all workers begin to paying income tax -- to around £9 000 -- by closing tax reliefs and loopholes for the wealthy
and increasing levies on property.
The former Labour government had raised the top rate
from 40% to 50% and decided to impose the new level on
income earned above £150 000 a year following the financial crisis.
The budget "will be watched closely by the market,
ratings agencies and most probably high income earners," said Joshua
Raymond, chief market strategist at City Index traders.
"Whilst it is going to be hard to shy away from the
politically sensitive elements expected such as a potential reduction in
the top tax rate... there are going to be some crucially important
elements on which investors will intensely focus, namely revisions to
growth estimates, borrowing forecasts and additional measures to help
In its November forecast, the government said Britain's
public sector net borrowing would hit £127bn, or 8.4% of
gross domestic product (GDP), in the 2011/2012 financial year ending in
The Office for Budget Responsibility, acting on behalf
of the government, added that state borrowing was predicted to fall to
£120bn, or 7.6% of GDP, in 2012/13.
Another measure set to appear in Wednesday's budget
include a government plan to issue state bonds, or gilts, lasting 100
years or longer, as the Treasury seeks to lock in historically low