Major fiscal objective of Chancellor George Osborne
The major fiscal objective of Chancellor George Osborne when coming to office in May 2010 was to remove the UK's structural deficit and run a balanced budget by 2015. Because of poor economic data the Treasury later acknowledged that this couldn't be achieved until 2018. Though until June 2012 at least government's tight fiscal policy (called as variously as fiscal austerity, fiscal consolidation or fiscal realism) remains largely in place.
The government announced in March 2011 that it planned to cut government spending by £81 billion over a 4-year period. The main spending cuts would be achieved by cutting most of the government department budgets by up to 20% though NHS has been protected from any real cuts. The number of civil servants employed by government has been dramatically decreased and 800,000 redundancies have been announced. Welfare benefits have been targeted by Minister for Pensions and Work, Iain Duncan Smith who wants to introduce a cap of £26,000 per year on benefit claimants. Public sector pay was frozen for 2 years and public sector pensions are in the process of being reformed to save money. The age for retirement has been raised to 67 and will rise to 68.
At the same instance, levels of taxation have increased. The most important is the increase in VAT rate to 20%. The government first maintained 50% income tax rate levied on top earners however then cut the rate to 45%. Public sector pension contributions have been increased and tax bands have been lowered so that more workers have to pay higher 40% band of taxation.