Britain facing tough pre-election budget

LONDON (AFP) - Britain's Labour government will deliver a critical pre-election budget this week to help fix the dire public finances but some experts fear political posturing with an election around the corner.

Finance minister Alistair Darling will announce what could be his final annual budget on Wednesday, with opinion polls showing the opposition Conservatives could achieve a narrow victory in the vote expected on May 6.

"We expect the budget to be more a party political broadcast than a concise roadmap of the government's planned fiscal consolidation," said BNP Paribas economist Alan Clarke.

Prime Minster Gordon Brown's handling of the economy, which suffered the deepest recession in modern history under his watch, has become a central issue for voters amid fears of a "double dip", or second phase, of the downturn.

The Conservatives, led by David Cameron, have indicated they will implement an "emergency" budget within 50 days of the election, if they emerge victorious.

Whichever party wins power, economists agree that spending cuts and tax hikes are urgently required to fix Britain's enormous public debt, which has ballooned in the face of a deep downturn and massive banking bailouts.

"The budget scheduled for presentation on 24 March will bear little relation to what is actually implemented, it will be little more than political posturing in the run-up to the election," said economics professor Michael Ben-Gad from London's City University.

"A real 'emergency' budget will be introduced in the summer by whichever party wins," he added.

"The budget on 24 March will not reflect any serious attempt to deal with the bleak fiscal outlook."

Chancellor of the Exchequer Darling has already warned that there will be no budget of pre-election giveaways in his 2010/2011 taxation and spending plans.

"I don't think anyone's expecting some sort of Christmas tree of a budget," Darling said earlier this month.

"They're not going to get anything like that. What you're going to get is a sensible budget, a budget for the times in which we live, a budget for the future of the country."

In the run-up to the budget, official data showed last week that public borrowing in the 11 months to February hit a record 131.9 billion pounds.

At the same time, downward revisions to previous months mean that borrowing will likely be less than the official target of 178 billion pounds in the current fiscal year to the end of this month.

"After better data, expectations are certainly higher now that the Chancellor will undershoot his borrowing estimate by about 5.0-15 billion pounds," Lloyds Banking Group economist Kenneth Broux told AFP.

"What he does with the windfall is likely to be more symbolic."

He added: "I would not be surprised if Darling pays some lip service to the ratings agencies and decides to cut the deficit instead to underscore Labour's responsibility and commitment to stabilising the public finances."

Major ratings agencies have appealed for the government to fix the public purse and avoid losing Britain's top-rated AAA credit assessments.

The loss of the top rating would ramp up the cost of state debt and send shockwaves through financial markets.

The government has also faced vocal calls from at home and abroad to get the public finances in order.

Brown has stated that he wants to more than halve the deficit over the next four years.

But the European Commission attacked Darling last week over the "absence of detailed departmental spending limits" in plans to curb the record deficit, which is forecast to soar above 12 percent of gross domestic product this year.

The European Union's executive arm also appealed for London to address "uncertainty" affecting its plans to tame a deficit level which is as high as that of debt-stricken Greece.

The British economy emerged from recession in the fourth quarter of 2009 with 0.3-percent growth, ending a record downturn that lasted for six quarters.

The economy shrank by a record 5.0 percent in 2009, in line with the official forecast of a 4.75-percent contraction.

Darling predicted in December that Britain would experience modest growth of 1.0-1.5 percent this year, and 3.25-3.75 percent in 2011.