Osborne Says U.K. Deficit Higher as Property Tax Is Overhauled

Chancellor of the Exchequer George Osborne announced a higher forecast for U.K. government borrowing as he overhauled the tax on buying homes and increased levies on multinational companies and banks. Britain will borrow 91.3 billion pounds ($143 billion) in the current fiscal year, Osborne said in his end-of-year update to Parliament in London today, citing estimates from the Office for Budget Responsibility. The OBR forecast in March that borrowing would be 86.4 billion pounds after accounting changes that took effect three months ago. “Today we do not shy away from the problems that remain unresolved in the British economy -- while the deficit is falling, it remains too high,” Osborne said. “Britain faces a choice. Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess, or do we finish the job –- and go on building the secure economy that works for everyone?” Five months before the next general election, Osborne sought to use his Autumn Statement to persuade voters his Conservative Party is better placed than the Labour opposition to maintain Britain’s recovery. The system of stamp duty on home purchases will be changed at midnight tonight to benefit 98 percent of buyers, Osborne said. A new 25 percent tax will be imposed on profits of multinational companies generated in Britain, while the amount of bank profits that can be offset by losses during the financial crisis will be cut to 50 percent in a bid to outflank Labour plans to tax the rich. ‘Not Fair’ “Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes -- that’s not fair to other British firms, it’s not fair to the British people either,” Osborne said. “My message is consistent and clear: low taxes, but taxes that will be paid.” The tax on multinational profits artificially shifted out of the U.K. will raise 1 billion pounds over the next five years, while banks will pay 4 billion pounds more in tax over the next five years, Osborne said. The chancellor announced an overhaul of stamp duty on property purchases, introducing marginal rates that will only apply to the portion of the price above a series of thresholds. That’s in contrast to the previous system under which a single rate is levied on the entire purchase price. Detailed Changes There will be no tax on the first 125,000 pounds paid, 2 percent up to 250,000 pounds, 5 percent up to 925,000 pounds, 10 percent up to 1.5 million pounds and 12 percent on everything paid over 1.5 million. It’s similar to a system just brought in by Scotland’s semi-autonomous government two months ago. “The system I introduce today replaces a badly designed system that has distorted our housing market for decades; it reduces the stamp taxes for 98 percent of people who pay them in this country,” Osborne said. “It is a fair, workable, lasting reform to the taxation of housing.” While Osborne said gross domestic product will expand by 2.4 percent next year, compared with the 2.3 percent predicted by the OBR in March, he said “warning lights are flashing” on the global economy and weighing on U.K. growth. Growth in 2016 will be 2.2 percent, compared with 2.6 percent predicted in March, 2.4 percent in 2017, compared with 2.6 percent, and 2.3 percent in 2018, down from 2.5 percent, he said, citing the OBR. Budget Deficit More than four years after Osborne took office pledging to all but erase the deficit by 2015, the U.K. will borrow 75.9 billion pounds in the fiscal year starting next April, reaching a surplus of 4 billion pounds in 2018-19, Osborne told lawmakers. With low-paid work accounting for many of the 1.8 million jobs created since 2010, and wage growth under pressure, the economic recovery has failed to deliver the boost to tax receipts that officials had predicted. Unemployment is forecast to fall throughout the period covered by the statement, Osborne said, dismissing opposition accusations that the new jobs are largely part-time and being created only in the southeast of England. The threshold for paying income tax will rise to 10,600 pounds next year, an increase on the 10,500 announced in the budget in March. Labour, which trails the Conservatives in polls on trust over the economy, is using the missed target to try to claw back credibility. “People are worse off and he’s failed to balance the books in this parliament,” Labour’s finance spokesman, Ed Balls, told lawmakers. “Every target missed, every test failed, every promise broken.” To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net