LONDON – Britain joined the rest of Europe on Tuesday by announcing a five-year deficit reduction plan worth billions of dollars, despite pleas from President Obama last week for G-20 countries to pace fiscal tightening.

Britain’s decision to cut rather than spend follows a wave of austerity packages across Europe, including almost $100 billion worth of cuts in Germany and public-sector pension reforms in France.

In a letter to members of the G-20 group Friday, Obama urged them to avoid “consequential mistakes of the past when stimulus was too quickly withdrawn.”

Nevertheless, Britain’s new Conservative-Liberal Democrat coalition went ahead Tuesday with an emergency budget calling for spending cuts and tax increases that will be worth $188 billion a year by 2014-15.

George Osborne, Britain’s finance minister, said that of those savings, about $145 billion will come from cuts to public sector spending and almost $43 billion will come from tax increases.

The ax will fall on various social welfare benefits, including a controversial three-year freeze on child benefits, a cap on housing benefits and means testing for disability allowances.

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Osborne also announced a two-year freeze on public sector salaries above about $31,000 a year. The pain for public servants is expected to worsen after a planned review of pensions in September. Most public sector departments face an average 25 percent reduction in spending in the next five years.

Other announcements Tuesday included a rise in Britain’s value-added tax, or VAT, from 17.5 percent to 20 percent, effective from January next year. The measure was included despite declarations by both the Conservatives and the Liberal Democrats during last month’s election campaign that they opposed an increase in the sales tax.

Osborne appeared eager Tuesday to offset the news of spending cuts and tax increases with an attack on banks.

“In putting in order the nation’s finances, we must remember that this was a crisis that started in the banking sector,” he said.

Following Obama’s lead earlier this year, Britain will impose a levy of between .04 and .07 percent on the balance sheets of British banks and building societies starting in January.

Osborne said he will work with the French and German governments to impose the tax, which he said was expected to raise more than $3 billion in annual revenue.

Germany announced a similar levy in March and plans to finalize draft legislation this summer. Details for a French bank levy will be revealed in the upcoming budget.

The levies will be discussed at the G-20 summit in Toronto this coming weekend.

 


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