Britain forecast a far deeper recession than thought yesterday, with the economy set to shrink 4.75 per cent this year, while it used a budget statement to also unveil a tax on bankers' bonuses.
"The task today is to ensure the recovery and promote long-term growth," Chancellor of the Exchequer Alistair Darling told Parliament, presenting a mini-budget report, a precursor to the annual 2010/2011 budget due early next year.
The new 2009 forecast marked a big downgrading of the 3.5-per cent contraction given in April. The economy was expected to grow by 1.0-1.5 per cent next year, in line with the previous estimate.
Mr Darling fired a broadside at banks amid mounting public anger over the return of bonuses in the troubled sector, which has been widely blamed for the global financial crisis.
He announced plans for a one-off 50-per cent tax on bankers' bonuses over £25,000 (€27,500) in a bid to claw back more than half a billion pounds of state money spent on rescuing ailing lenders.
"There are some banks who believe their duty is to pay substantial bonuses to already well-paid staff," Mr Darling said.
He added that the one-off tax measure would yield £550 million which would pay for plans to help get young and older unemployed people back to work.
The nation's struggling economy has been battered by the global financial crisis and the global downturn, and is currently mired in the longest recession on record, shrinking over the past six quarters.
"While I'm confident that the UK economy is on the road to recovery, we cannot be complacent... to cut support now could wreck the recovery and that's not a risk I'm prepared to take," Mr Darling told lawmakers.
"I have been clear that support during the downturn must go hand in hand with steps to rebuild our fiscal strength," added Mr Darling.
"I believe we have made the right choices to help the country through the recession."
Darling said that government borrowing would reach a bigger-than-expected £178 billion in 2009/10.
That compared with his previous estimate that the state's public deficit would reach £175 billion during the current fiscal year.
The public finances have been severely stretched by costly banking bailouts, while the recession has ravaged taxation revenues for the Treasury.
Mr Darling meanwhile confirmed the government would stick by plans to reverse last year's tax cut on goods and services.
The government had slashed VAT to 15 per cent in December 2008 to help boost consumer spending, but will now return as planned to the pre-recession level of 17.5 per cent in January.
Mr Darling also announced training to help youth unemployment as the total number of unemployed fast approaches 2.5 million people.
Funding would be provided for 16-24 year olds to guarantee work or training after six months out of work.
Not ignoring the plight of the elderly, he also announced an above-inflation increase to the annual state pension.
He added that the relief on property tax would expire at the end of the year.