- Associated Press - Tuesday, June 22, 2010

LONDON | Britain’s Treasury chief unveiled on Tuesday the toughest cuts to public spending in decades, a raft of tax rises and a new levy on banks in an emergency budget aimed at restoring the country’s ravaged public finances.

George Osborne told lawmakers his austerity package — which will see welfare payments and spending programs slashed — was necessary to quickly reduce crippling national debts racked up during the global financial crisis.

Everyone in Britain will feel the strain, he said, from shoppers paying higher sales tax, wealthy people hit for higher capital-gains taxes, banks targeted by a new levy and even Queen Elizabeth II — who accepted a freeze in her support from taxpayers.

“With this unavoidable budget we’ve had to increase taxes, we’ve had to pay the bills of past irresponsibility, we’ve had to relearn the virtue of financial prudence,” Mr. Osborne told the House of Commons.

Prime Minister David Cameron campaigned before Britain’s May election on a promise to make steeper and faster cuts to Britain’s debts than would Gordon Brown’s Labor Party — ousted after an inconclusive result when Mr. Cameron’s Conservatives formed a coalition with the smaller Liberal Democrats.

“Today, we take decisive action to deal with the debts we inherited and confront the greatest economic risk facing our country,” Mr. Osborne said.

The move puts Britain, like most of Europe, at odds with the U.S. government’s view that the global recovery still needs support. President Obama expressed his administration’s worries about premature spending cuts in a letter to world leaders on Friday and is expected to urge caution at the Group of 20 summit in Canada this weekend.

But in the wake of Greece’s near bankruptcy, European leaders have resolutely shifted their focus to reducing debt.

Mr. Osborne said most public-sector workers except the lowest-paid will endure a two-year pay freeze in his budget, while the majority of government departments face budget cuts of 25 percent to raise 30 billion pounds ($44 billion) per year in expenditure savings.

He said Britain will impose a levy on bank balance sheets from January 2011 to raise about 2 billion pounds ($3 billion) per year. France and Germany have agreed to impose similar levies, he said.

At least 11 billion pounds ($16 billion) will be saved through welfare cuts, by freezing child benefit rates for three years, cutting tax credits for middle-class families and limiting housing benefits. New medical tests will be introduced for disability allowances and Britain will raise the state pension age to 66.

Mr. Osborne confirmed that value-added tax on goods and services will rise from 17.5 percent to 20 percent from Jan. 4, though essentials including food, children’s clothing and books will remain exempt.

The capital gains tax will rise from 18 percent to 28 percent for richer taxpayers.