Britain's Chancellor George Osborne said today that the recovery of the UK economy is taking longer than he had hoped.
He warned that more spending cuts will be needed to get public finances under control.
With official growth forecasts cut, Osborne had little room for maneuvre but said he was trimming departmental spending to generate more investment in infrastructure.
"It has taken time, but the British economy is healing," Osborne told the House of Commons, though the latest estimate from the independent Office for Budget Responsibility forecasts a 0.2% contraction in the economy this year.
In his scheduled update to budget policies, Osborne essentially stuck to his plan of cutting government deficits to promote recovery. But he did accept to increase investments to stimulate employment and demand, as called for by the opposition Labour Party.
Osborne said the paltry recovery in the UK and a recession in the euro zone will mean Britain's economy would only grow by 1.2% next year, down from the 2% it predicted in March. Osborne confirmed that his target for public sector debt to start dropping as a percentage of GDP by 2015-2016 has also been pushed back a year.
As a result of the revised forecasts, government spending will be cut a further 1% next year and 2% the year after. As well as spending cuts, Osborne also announced a cut in tax relief on the pensions of higher-rate tax payers and a cap on welfare payments.
The taxation and spending measures announced today were forecast to yield an additional £3.9 billion to government income this year. Some £3.5 billion of that sum is expected from a one-time auction of 4G mobile telecoms licences.
Osborne said the government would crack down on tax avoidance, increase infrastructure investment by 17%, raise tax deductions for capital investment by businesses 10-fold and cut corporation tax to from the current 22% to 215 in 2014-15.
Osborne said this compares with corporation tax of 40% in the US, 33%in France and 29% in Germany.
Economists noted the investment projects would help to create jobs, though some suggested the overall impact on the economy would be negligible. UK households were promised an increase in the personal exemption from income tax and, for the elderly, a 2.5% boost in the basic state pension to £110.15 a week.
Banks were excluded from the lower corporation tax, and the government is increasing the Bank Levy - a tax on the balance sheets of banks - to 0.13% to keep annual revenue at £2.5 billion.
The Treasury also estimates that it will be able to recoup up to £5 billion in lost tax by 2015-16 thanks to a new agreement with Swiss banking authorities.
Osborne also announced several capital investment projects including tax incentives to promote the production of shale gas. At the same time, the Department of Energy and Climate Change announced plans to build more gas-fired generating plants to replace aging coal, nuclear and gas plants.
A £1 billion loan was also announced to extend the London tube network. Osborne said the government was considering allowing stocks and shares ISA (tax-deferred individual savings accounts) in smaller stock markets such as AIM, which lists smaller companies with less traded shares.
The coming days will tell whether any parts of the budget plans backfire against the UK government, as happened with the budget announced in May.
Osborne then presented a series of unpopular measures that not only gave a tax cut to the wealthiest taxpayers, but eventually led to embarrassing reversals on his plans to raise taxes on hot meat pies, reduce tax relief for charitable donations, and to go ahead with a hike in the tax on car fuels.
