Osborne Lowers U.K. Growth Forecast, Increases Borrowing, Seeks Voters Approval by Taxing Oil Companies, Banks, Rich

The UK budget was announced yesterday by George Osborne, and here are the main points of interest:

• Lower growth forecast (anyone surprised?)
• More borrowing needed than forecast (anyone surprised?)
• Higher Oil Production Tax, Bank Tax, Rich Tax
• Most other measures are anecdotal.

One thing I would bet on, is that even the current levels of borrowings are too conservative (expect more borrowing than "expected") and the growth will be negative once the real estate bubble pops in the UK (expect another "who could have none?" moment).

While Osborne and Cameron are definitely moving in the right direction compared to Brown and Darling, they are still way to shallow in their cuts. Moreover, propping up banks, then taxing their profits is stupid and distorts de markets. Finally, taxing the rich and oil companies is just a populistic political move that has no other motives but to earn votes.

Finally, the 10,000 interest free loans he is willing to make for people is just one of the worst ideas I've heard, only the French had come with such ideas before. First of all, you end up creating two classes of people: those privileged who get the loans, and those who pay the interest on these loans. Second, he's sinking people into debt at the very peak of the real estate bubble, which could have catastrophic consequence on the personal finances of these people — and dare I ask, losses on the tax-payers portfolio of loans?

March 23 (Bloomberg) -- Chancellor of the Exchequer George Osborne said the British economy will grow more slowly than forecast in 2011 and the U.K. will need to borrow more than previously thought in the next five years.

The Office for Budget Responsibility predicts 2011 growth of 1.7 percent, down from the 2.1 percent forecast in November, Osborne said in his budget speech in the House of Commons in London today. The government will borrow 122 billion pounds ($198 billion) next year compared with an earlier forecast of 117 billion pounds. The chancellor said he will stick to his plan to eliminate the bulk of the deficit by 2015.

Osborne announced tax reductions in what he said was a “fiscally neutral” budget, with a 2 percentage-point cut in company tax this year to 26 percent, an increase in the tax-free allowance for personal earnings and an immediate lowering of duty on gasoline. The levy on banks will rise in January.
[...]
Osborne said the bank-levy rate next year will be adjusted to “offset” the effect of the cut in corporation tax. The levy will increase to 0.078 percent from January 2012, raising an additional 100 million pounds, according to the Treasury.

Seeking to turn around sentiment in the housing market, Osborne also announced 250 million pounds of interest-free loans for 10,000 people buying their first house or apartment.
[...]

March 24 (Bloomberg) -- Chancellor of the Exchequer George Osborne sought to pacify U.K. voters hit by his deficit- reduction plans and a sluggish economy with money taken from oil companies, banks and the wealthy.
[...]
The budget was “impressively populist even though the wider macroeconomic situation is appalling,” Andrew Hawkins, chairman of London-based polling company ComRes Ltd., said in a telephone interview. “This budget sets a different tone. The emergency budget last year was bleak. He is now telling people that he is a tax-cutter, something we haven’t heard from the coalition yet.”
[...]
Among his headline measures, Osborne raised oil production taxes to pay for a cut in fuel duty aimed at helping drivers paying record gasoline prices. The supplementary charge on North Sea oil profits went up to 32 percent from 20 percent, while Osborne lowered the tax on gasoline pump prices by 1 penny a liter and delayed a planned increase in line with inflation for a year.
[...]
For 10,000 people earning less than 60,000 pounds a year who are buying their first home, Osborne offered 250 million pounds in interest-free loans.
[...]
A 30,000-pound annual charge on people domiciled elsewhere for tax purposes who’ve lived in the U.K. for seven years will rise to 50,000 pounds for those in the country for more than 12 years, Osborne said. In return, he said, income remitted to the U.K. for investment in British businesses won’t be taxed. He also pledged not to change the tax status of the non-domiciled again before 2015.

For the wealthy, though, Osborne held out the prospect of abolishing the 50 percent top rate of income tax in the future.

“I am clear that the 50-pence tax rate would do lasting damage to our economy if it were to become permanent,” Osborne said. “That is why I regard it as a temporary measure.”