Britons, many already weary of government austerity budgets that some economists say are impeding the country’s recovery, are going to have to wait even longer for relief.
The architect of the austerity program, George Osborne, the chancellor of the Exchequer, told Parliament on Wednesday that the government had missed one of its self-imposed debt-cutting goals and would have to extend the belt-tightening into 2018, a year longer than previously promised.
Although Mr. Osborne maintained that the debt reduction plan was still on track, his presentation drew heckling and laughter from some opposition lawmakers, particularly after he argued that new tax measures would show that “we’re all in this together.”
The next general election in Britain will take place in 2015, well before the end of austerity measures that have included cuts in welfare services and the elimination of tens of thousands of public sector jobs.
On Wednesday, the Office for Budget Responsibility, a nonpartisan body that is monitoring the economy, said it now expected full-year data to show that the economy shrank 0.1 percent this year, instead of growing 0.8 percent, as the office had previously forecast.
It also said the economy would grow 1.2 percent next year as opposed to the 2 percent predicted earlier.
“It’s a hard road but we are getting there,” Mr. Osborne told Parliament. “Britain is on the right track. Turning back now would be a disaster.”
Reducing the budget deficit and truly getting the economy back on track has been the overriding objective binding the uneasy coalition between Prime Minister David Cameron’s Conservative Party and Liberal Democrat lawmakers that has governed Britain since 2010.
Both parties have been betting that imposing the most severe government spending cuts in recent decades will reap economic rewards before the next general election. But the last missed target for cutting debt, combined with a painfully slow recovery, risks undermining the entire political strategy and stoking tensions within the coalition. And it undermines the coalition’s message that it is better equipped to deal with the economy than the Labour Party.
“The government’s strategy is to combine deficit reduction with economic recovery, but at the moment we are not getting much of either,” said Andrew Smith, chief economist at the auditing and advisory firm KPMG.
The government has been defending its austerity measures, which include tax increases and spending cuts, by saying they help to keep Britain’s borrowing costs low and so will contribute to a revival of the British economy. Compared with the Continent, Britain has a relatively better economic outlook, and its borrowing costs are much lower.
Mr. Osborne said the British economy was facing “a multitude of problems” at home and abroad, making the recovery more difficult. He mentioned uncertainty about averting the so-called fiscal cliff crisis in the United States in January, slowing growth in China and the euro zone recession.
“They really need some growth now,” said David Tinsley, an economist at BNP Paribas. “Making the cuts when the economy is stuck is really difficult.”
Ed Balls, economic spokesman for the Labour Party, said Wednesday that Mr. Osborne’s statements illustrated an economic failure of government. “The defining purpose of the government, the cornerstone of the coalition, the one test they set themselves — to balance the books and get the debt falling by 2015 — is now in tatters,” he said.
Labour, which is leading in some recent national polls, has been criticizing Mr. Osborne’s austerity plan as going too far and trying to cut debt too quickly without offering any investments to fuel economic growth. But economists said that with public finances stretched as they were, there was little Mr. Osborne could spend on a revival.
He announced a one percentage point cut in the corporation tax, to 21 percent, and canceled a planned increase in the fuel tax paid by consumers. He also said the government planned to be much stricter on going after tax dodgers.
“I know these tax measures will not be welcomed by all,” Mr. Osborne said. “But we must show we’re all in this together.”
So far, Mr. Osborne has managed to balance the competing demands of Conservatives, who generally favor tax and benefit cuts, and Liberal Democrats who would rather increase the burden on the wealthy if necessary. But blaming the weakness of the British economy for the euro zone crisis may become a less effective political weapon if the single-currency area begins to stabilize.
“The strains are muted because people understand the seriousness of the situation and the absence of any obvious way of getting out of it,” said one senior member of the Liberal Democrats, who was not authorized to speak publicly. “But as it goes on for longer, the strains under which the coalition begins to operate will become greater.”
(Matthew Cypher)
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