Osborne confirms pay and jobs pain as growth slows


The chancellor said much of Europe was heading towards recession as he pledged to do "whatever it takes" to protect Britain and keep interest rates low

Chancellor George Osborne has said public sector pay rises will be capped at 1% for two years, as he lowered growth forecasts for the UK economy.

The number of public sector jobs set to be lost by 2017 has also been revised up from 400,000 to 710,000.

Borrowing and unemployment are set to be higher than forecast and spending cuts to carry on to 2017, he admitted.

For Labour, Ed Balls said the figures showed the chancellor's economic and fiscal plans were "in tatters".

Outlining his plans to MPs, based on economic forecasts from the independent Office for Budget Responsibility (OBR), Mr Osborne told MPs the UK economy was now forecast to grow by 0.9% this year - compared with 1.7% forecast in March and 0.7% next year, down from the 2.5%.

He said the eurozone crisis, a hike in global commodity prices and a new assessment that the UK's economic boom was bigger and the bust deeper than previously believed was to blame.

Borrowing was falling and debt would come down but "not as quickly as we wished". In 2011-12 borrowing is now forecast to be £127bn - up from £122bn forecast in the Budget and, over five years, the government is expected to borrow £111bn more than predicted in March.

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But he said, because debt interest payments had dropped, the government would be spending £22bn less over this Parliament on that than predicted.

The OBR forecast that unemployment would rise from 8.1% this year, to 8.7% next year - before falling to 6.2% by 2016. Its earlier prediction that a squeeze on the public sector would mean 400,000 job losses over five years has been nearly doubled, to 710,000 - as a result of extra spending cuts pencilled in for 2015-16, and 2016-17.

Chief Secretary to the Treasury Danny Alexander later told BBC Newsnight that the government did not yet know where the bulk of the £30bn additional cuts - £1.2bn of which is expected to come from changes to tax credits - would come from.

He said: "We haven't decided where those cuts will come from. It doesn't have to be found quickly, that is in 2015-16 and 2016-17. In good time, well before the next election, we will set out precisely what the measures are to deliver those additional savings in the next Parliament."

The chancellor conceded he would not now be able to eliminate the structural deficit and see national debt falling by 2014/15 as had been predicted. The structural deficit is now predicted to be eliminated by 2015-16, pushing it beyond the next general election.

'Debt storm'

While the OBR had not forecast a double dip recession - as the economic think tank the OECD did on Monday - the chancellor warned that if the rest of Europe went into recession, "it may prove hard to avoid one here".

But he said the government would meet its budget rules.


  • Growth forecasts for UK economy cut 0.9% this year and 0.7% next year
  • Borrowing forecasts revised up - an extra £111bn to be borrowed over five years
  • Pay cap of 1% for public sector workers once two-year pay freeze ends
  • Unemployment to rise from 8.1% this year to 8.7% next year
  • More public sector jobs forecast to go - 710,000 over five years
  • £40bn "credit easing" scheme to underwrite bank loans to small firms
  • Working age benefits will be uprated by 5.2% in line with September's inflation rate
  • Basic state pension to rise in line with inflation by £5.30
  • Other increases in tax credits will not go ahead in 2012-13
  • £5bn plan to improve national infrastructure over three years.
  • £1bn scheme to subsidise work placements for the young unemployed
  • £500m housebuilding plan in England
  • January rise in regulated rail fares to be capped at 6.2%, not 8.2%
  • Doubling of free childcare places for deprived two-year-olds to 260,000 in England
  • 3p fuel duty rise due in January to be delayed or frozen
  • Bank levy to be increased

Mr Osborne said: "Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debts.

"We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth."

BBC News Channel chief political correspondent Norman Smith said many would be surprised by the scale of the pain ahead, with difficult austerity measures planned even after the next election and a big squeeze on living standards, with the OBR predicting no significant rise in disposable income before 2014 and a post-war record fall in incomes this year.

Among money-saving measures outlined by the chancellor were a 1% cap on public sector pay for two years, once the current two-year pay freeze ends from 2013 - Mr Osborne said the government "cannot afford the 2% rise assumed by some government departments thereafter". That would save more than £1bn by 2014-15, he said.

He acknowledged a 1% cap was "tough" but said many public sector workers would be helped by "pay progression" - annual increases in salary grades - even when pay was frozen.

Plans to raise the state pension age from 66 to 67 would be brought forward by eight years to 2026, to save £59bn in the long term.

The child element of child tax credit and the disability elements of tax credit will be uprated in line with inflation, but other tax credit increases will be restricted.

But in April there will be a £5.30 increase in the basic state pension to £107.45, in line with the 5.2% inflation rise in September.

Pensioners receiving pension credit will also benefit from an increase worth £5.35 and "working age" benefits would also go up in line with the higher inflation figure - contrary to earlier reports - which he said would be a "significant boost to the incomes of the poorest".

Fuel duty

Other announcements included an increase in the bank levy to 0.088% from 1 January and a 50% discount for social housing tenants who want to buy their own home - the proceeds of which would go towards building new affordable homes.

Mr Osborne also went through a series of schemes aimed at boosting the UK's flagging economy.

Start Quote

His economic and fiscal strategy is in tatters”

End Quote Ed Balls Shadow chancellor

These include a £20bn national loan guarantee scheme for small businesses, a £40bn "credit easing" scheme to underwrite bank loans to small businesses, plans for £5bn spending on big infrastructure projects over three years - with 35 road and rail schemes identified, £400m fund to kick start housing projects, an extended business rate holiday for small firms and an extra £1.2bn for schools in England.

Rail fares, and fares for the Tube and London buses, will be capped at inflation plus 1% while the fuel duty rise for January has been axed and a planned 5p rise in August limited to 3p. Free nursery care targeted at two-year-olds from poorer families will be extended to 260,000 toddlers and Mr Osborne confirmed a £940m scheme to target youth unemployment by subsidising work placements in the private sector.

Overseas aid will be adjusted as it is currently on track to surpass the government's commitment to raise it to 0.7% of GDP, which Mr Osborne said could not be justified in the current circumstances.

But for Labour, shadow chancellor Ed Balls said the figures showed the "truly colossal failure of the chancellor's plan".

"Let's be clear what the OBR has told us today: Growth flatlining, down this year, next year and the year after. Unemployment rising, well over £100bn more borrowing than the chancellor planned a year ago - more borrowing that the plan which the chancellor inherited at the last general election.

"As a result his economic and fiscal strategy is in tatters."

On the issue of public sector pay, TUC general secretary Brendan Barber said: "The chancellor's refusal to back a Robin Hood tax, and make nurses pay instead, speaks volumes about his values.

"Public servants are no longer being asked to make a temporary sacrifice, but accept a permanent deep cut in their living standards that will add up to over 16% by 2015 when you include pay and pension contributions."


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  • rate this

    Comment number 593.

    No 66: Botnedz

    Do us all a favour and grow up.

  • rate this

    Comment number 592.

    The long and short of it all is that like it or not, we're all going to have to put up with austerity for longer than was first planned.

    And people need to learn not to expect politicians to come up with quick fix solutions. Economics is a complex issue.

  • rate this

    Comment number 591.

    Ooops - can't see the Public swallowing this one Osborne matey! Anyone for a Strike then?
    (Or am I going to get a 4 year prison sentence at tax payers expense for suggesting that on the internet, but then again, it might be a nice way to sit out the double dip recession whilst my house gets repo'ed and the muppets sort out that Euro zoney thingy) bless you politicians for one huge (Ed) Balls up!

  • rate this

    Comment number 590.

    More the same it is so sad nobody understand o do not wot understand the problem is the same in the UK-USA-France-Germany Italy and all the rest.
    Shame because is very simple a capitalist system created in the beginning of the 1900 is not able to cope in 2000.
    We need a new version which will care for the majority and not for the minority and the lightning speed of modern communication.

  • rate this

    Comment number 589.

    538. DDFraser
    343.nieuw divil

    Don't take his bait, this HYS troll likes to think he's being controversial, he's a bit lonely. I think he's related to Smeagol , there's probably a strong family resemblance.

    It's best to ignore him and stay on topic.

    This is humour not a personal attack Moderator person.

  • rate this

    Comment number 588.

    This governemnt is creating a have and have not state. Welcome back to the victorian age!

  • rate this

    Comment number 587.

    Dealing with Labour's massive debt, it's no wonder the Coalition is struggling to keep everyone happy. For far too long, public sector pay and pensions have been too generous, and recipients have been accustomed to easy jobs and lavish handouts.

    Listening to Balls, you'd think he wasn't responsible for such an utter mess.

  • rate this

    Comment number 586.

    I dont think the man has a clue about real life. On one hand he is putting up pensions and state benefits inline with inflation, on the other he is capping CTC to fund the nursery places for 2 y/os. Making more parents work by insisting children go to nursery will cause more unemployment? He cant decide if we are going into a recession or not, frankly we havent come out of the last one yet!

  • rate this

    Comment number 585.

    At this rate, at 69yrs old I will have to go back to work, If there is any work going.

  • rate this

    Comment number 584.

    I suppose this is the now infamous..there is no plan b.. "plan b"!
    So the multi millionaire Bullingham Boys having throttled the little recovery in it's tracks..have again decided that the working class men/women will pay for the failure of capitalism.
    The day after Mrs Cameron was parading a £600 pair of shoes..the 1% pay rise when inflation is 5-2%,will leave me worse off for the 4th year.

  • rate this

    Comment number 583.

    When's this public sector strike? I hope it snows... hard

  • rate this

    Comment number 582.

    " DDFraser
    It'll cost YOU more money to repair and replace all the things that were stolen from your home. Desperate people commit crime - usually theft and violence!"

    ND has a solution: allow gun ownership and give "upright citizens" the right to arm and defend themselves against such people, shooting them on sight if necessary.

  • rate this

    Comment number 581.

    also why do we keep getting people in the streets coming up to us when shopping asking if we would help a kid in Africa or somewhere, how about help a poor pensioner heat their home over the winter because the government has stripped them of their money?

  • rate this

    Comment number 580.

    On the exact same page of news we have "Longer wait for state pension" and the news that we are going to have to work longer. And "young jobless reaches a record high"

    Is it me, am I missing something here? Is everyone stupid?

    Hello out there..........

  • rate this

    Comment number 579.

    sword of truth "Are there not more worth while public projects i.e the NHS or making sure theres enough grit on the roads?"

    It is the NHS staff who would benefit from the pay rises as well, no staff (or not enough) staff = lots more dead people! And if wages aren't matching private nursing wages / conditions then many will (and currently do) leave the NHS to go to the private sector

  • rate this

    Comment number 578.

    This Govt are intent on creating a race to the bottom and the BBC is intent on creating a divide between public and private sector but the fact is I WILL retire at 49, play loads of golf and screw as much tax out of the private sector...keep on paying lemmings! my gold plated pension is ever so shiny...No pay rise for 3 years - who cares: I can still afford life.

  • rate this

    Comment number 577.


    319. hizento
    If all public sector jobs were handed over to private sector all public services would simply be unaffordable."

    Which is why it's cheaper for us to get Biffa to collect our business refuse than it is for us to pay the council to do it."

    And they do a better job of it, and collect on weekends & bank holidays.

  • rate this

    Comment number 576.

    Concerning the working tax credits,, Have people forgot that from next April, those over the age of 50 on low incomes, lose the 50+ element and also cannot claim working tax credits unless they work at least 30 hrs a week?
    Presently it's 25 hrs a week for over 50's. What about us part timers over the age of 50 who cannot work any more hours (I can't as my partner is disabled and needs my help)

  • rate this

    Comment number 575.

    To everyone who complains about feather bedded public sector workers: swap your job with a secondary school teacher in an inner city school or a nurse on A&E on Saturday night. Don't think many of you would last long. Think about doing it until you are well past 65. Education is vital to the future of the country and we have to get it right. Attacking public sector workers is not a good start.

  • rate this

    Comment number 574.

    539: "RobbedPeter"

    "The public sector should be fed up of subsidising the private sector." Nice viewpoint, when the truth is the exact opposite of what you state. Your pension accrued over 26yrs will not be touched, it's future accrual that will change. I lost my DB pension in the private sector. I would have happily paid extra to keep it but wasn't given the option.


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