Autumn Statement: Benefit squeeze as economy slows

 

George Osborne: "There will be no fuel tax rise this January"

Chancellor George Osborne has announced a fresh squeeze on benefits, as he admitted the UK economy was performing less well than expected.

Austerity measures will be extended to 2018 and Mr Osborne looks set to miss key debt-reduction targets.

He also announced more money for roads and schools and axed a planned 3p fuel duty rise, in his Autumn Statement.

He said "turning back now would be a disaster" for the UK. But Labour said his credibility was "in tatters".

Mr Osborne had said debt would start falling as a proportion of GDP by 2015/16 - the year of the next general election.

But he has been forced to delay that target by a year because of the worse than expected state of the economy, which is now expected to shrink this year by 0.1%.

The Office for Budgetary Responsibility says the UK has a "better than 50% chance of eliminating the structural current deficit in five years time", said the chancellor - meaning his other key objective has been pushed back by a year to 2017/18.

'In this together'

This move heralds a fresh benefits squeeze and a raid on the pensions of the wealthy.

What is the Autumn Statement?

  • One of the two major statements the chancellor has to make to Parliament every year
  • Since 1997 the main Budget - which contains the bulk of tax, benefit and duty changes - has been in the spring before the start of the tax year in April
  • The second statement has tended to focus on updating forecasts for government finances
  • Under the last Labour government it was called the pre-Budget report

Most working age benefits, such as Jobseekers Allowance and Child Benefit, will go up by 1%, less than the rate of inflation, for the next three years.

MPs are due to vote on the benefit squeeze, although Labour has yet to decide whether it will oppose the move.

"We need to see the detail," said the shadow chief secretary to the Treasury, Rachel Reeves.

"I just don't think it can be right to be cutting the support for those people on modest incomes and those people who through no fault of their own have lost their jobs"

And there will be a further cut in tax relief on large pension pots, saving £1bn a year - something the chancellor said proved "we are all in it together".

In other moves:

Income tax personal allowances will go up by £1,335 - £235 more than previously announced - so no tax will be paid on earnings under £9,440.

The threshold for the 40% rate of income tax is to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.

The basic state pension will rise by 2.5% next year to £110.15 a week.

Mr Osborne announced a fresh crackdown on tax avoidance and a squeeze on Whitehall budgets to pay for a new road and school building programme.

He told MPs: "It's taking time, but the British economy is healing."

But Shadow Chancellor Ed Balls, for Labour, accused Mr Osborne of breaking his own rules, on which his credibility depended.

Analysis

The Office of Budget Responsibility was set up by the chancellor, but is designed to provide independent economic forecasts.

Its chairman Robert Chote reassured journalists at his press briefing that there had been no political interference in his work. And certainly there would be some grim reading in their latest report.

Forecasts for economic growth downgraded since the Budget; a 70% chance the structural deficit will go by 2017/18 (initially this was to go entirely by election time) and the news that George Osborne was no longer on course to meet his debt target.

But given what many other forecasters were predicting the Chancellor probably sighed with relief when the OBR showed them their draft report two weeks ago.

Unlike others the OBR believes borrowing will be lower this year than it did at the time of the Budget.

That has helped blunt a political attack but is largely due to an accounting change which lowers borrowing this year but pushes it up a bit later on. The assumed proceeds from the 4G auction also helps enormously.

So while the overall outlook looks worse than at the time of the budget the chancellor has been provided with some - relatively - encouraging short term news.

"Today after two and a half years we can see, and people can feel in the country, the true scale of this government's economic failure," Mr Balls told MPs,

He said the average family with children on £20,000 a year would be "worse off" - even with the personal allowance changes.

Mr Balls claimed Mr Osborne's plan to raise £1bn from pension tax relief on the well-off raised less than £1.6bn given away in Mr Osborne's first Budget on the same reliefs.

Office for Budgetary Responsibility chief Robert Chote said growth had been slower than predicted when the coalition came to power because of "disappointing" consumer spending, business investment and trade.

"What's striking has been the weakness of the recovery over such an extended period of time," he added.

Asked if this meant the government was no further forward in fixing the UK's economy than when it started, he said underlying structural problems had been worse than initially thought and he was now "less optimistic" about its long-term ability to bounce back.

A senior Liberal Democrat source described the Autumn Statement as a "good package" of measures in which the coalition had made "tough but fair" decisions.

CBI director general John Cridland welcomed the promised investment in infrastructure and new tax relief measures for small firms but said businesses now "need to see the chancellor's words translated into building sites on the ground".

"It is no surprise that after a difficult year the economic realities dictate that austerity and debt reduction will take longer," he added.

"The chancellor has stuck to his guns on deficit reduction - avoiding deeper cuts or more borrowing in order to retain international credibility."

Cuts 'not fast enough'

But TUC general secretary Brendan Barber said: "What is missing today is any vision of a future economy that can deliver decent jobs and living standards - it's pain without purpose."

He added: "When you are self-harming you should stop, not look for better sticking plasters."

Plaid Cymru MP Hywel Williams said the benefits squeeze set out in the Autumn Statement threatened to dismantle the welfare state and create a generation lost to unemployment, homelessness and poverty.

Start Quote

At a time when his critics - and Ed Balls in particular - are able to say "I told you so", George Osborne looked and sounded confident whilst the shadow chancellor looked the reverse.”

End Quote

"Wales' higher-than-UK-average unemployment levels also show that the welfare of Welsh workers and jobseekers are low on the London priorities list," he said.

The SNP welcomed the "long overdue" extra capital investment promised for Scotland, but the party's Westminster leader Angus Robertson said Mr Osborne's "right wing pursuit of austerity" had wrecked the UK's economy.

"His response today has simply been to announce yet more austerity which will bear down extremely harshly on some of the most vulnerable people in society," added the MP.

But UK Independence Party leader Nigel Farage said Mr Osborne was "not cutting far enough or fast enough" and asked what had happened to the government's much-vaunted "bonfire of the quangos".

"We have got to make some big, deep cuts in these areas and I just don't think this government has the courage to do what needs to be done", he added.

 

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  • rate this
    -1

    Comment number 22.

    And yet we are still throwing away £17bn to other countries in the name of Aid. That should have been the first thing to be cut... to £0!

  • rate this
    +1

    Comment number 21.

    I despise the Tories mainly because of social policies and snobbery but I have grown to despise Labour for being snakes. All they do is throw money at things and it will fixed itself. Thats why we don't have a pot to iss in. Thats why we are in this position to begin with. Britain needs a reality check, we can't afford all this debt and we are living beyond our means.

  • rate this
    0

    Comment number 20.

    It is always going to be mission difficult when the rest of the Eurozone and beyond are also going through tough times. To expect stellar growth is crazy, and bumping along at roughly zero percent is not as bad as it seems. A good hard look at companies such as Google, Amazon is welcome, but will require smart action or they will just find other ways to work the system.

  • rate this
    +35

    Comment number 19.

    lets not hear any more nonsense about the tory party being the party of economic competence. we are all paying the price of this governments failure on a massive scale. no growth. no future.

  • rate this
    +69

    Comment number 18.

    Fuel duty has not been cut.... simply not raised. With high inflation benefit "increases" of 1% are real cuts. "Benefits cut and no fuel duty raise" is more accurate.

  • rate this
    +13

    Comment number 17.

    And here is the sweetners for his buddies -:

    Main rate of corporation tax to be cut by extra 1% to 21% from April 2014

    Inheritance tax threshold to be increased by 1% next year

    No new tax on property value

    Trebles all round !!!!

  • rate this
    +224

    Comment number 16.

    I listened to Osborne and Balls today stumble their way through, whilst surrounded by heckling fools, and came to the conclusion we're run by a load of idiots.

  • rate this
    -12

    Comment number 15.

    Well, I never thought it would be an easy ride and it isn't. But at least there is a credible map to recovery, which is more than the Eds offer.

    Some infrastructure investment too, which is welcome and ought to repay long term.

    Oh, and a '1%' pension raid which is tangible evidence of an 'in it together' - not that it will satisfy the critics.

  • rate this
    -5

    Comment number 14.

    I'm impressed with the budget, which looks good & brings hope/offers relief to many out there struggling to survive. Better than the last budget but we didn't hear how the £17bn hole would be plugged & nothing on social housing to boost the economy, housing & employment. On the whole a good package but the govt has got to plug the loophole for tax avoidance & ensure that Orgs pay their taxes.

  • rate this
    +85

    Comment number 13.

    A delayed increase fuel duty is not a cut in fuel duty, let's make that clear.

  • rate this
    +1

    Comment number 12.

    Nothing in this statement benefits me.

    I would have liked to have seen a cap on rail fare increases and stamp duty waived for first time buyers.

  • rate this
    +130

    Comment number 11.

    What Cameron needs to do is hit the people who got us into this mess (bankers) where it hurts most. By that I mean suspending the obscene bonuses and pumping them back into the economy. And pigs might fly...

  • rate this
    +166

    Comment number 10.

    Some money for science - fantastic! But more generally we must start to reward skilled people who add to society, not TV celebs, footballers, lawyers, etc.

  • rate this
    0

    Comment number 9.

    Option 1. Borrow money and spend; Option 2. Tax and spend. Or convince the global market we are lowering our borrowing and taxation and GB is a good place to do business?
    We have tried Option 1 and 2 in the past and it gave us a £1 Trillion debt!

  • rate this
    +7

    Comment number 8.

    I'm sorry but popular apeasement measures such as failing to implement new tax rises are not going to the UK out of its economic slump.

    Failing to to increase taxes may gain them a couple of points in the opinion polls, but it does the UKs prospects for recovery no good at all.

  • rate this
    +1

    Comment number 7.

    As always, the devil in the detail - in this case, the admission that it will take another *five* years for public spending to fall to 39.5% of GDP. The minor changes to tax thresholds and corporation tax are welcome, of course, but where are the proposals for real reductions in the obscene levels of tax leveled on individuals and businesses?

  • rate this
    0

    Comment number 6.

    Some good, some bad, and to be honest I was expecting worse

  • rate this
    -22

    Comment number 5.

    40% tax rate should be 75% so the rich can pay their fair share.

  • rate this
    +235

    Comment number 4.

    BBC may I suggest you rephrase your headline. This is by no means a 'cut' in fuel duty, there is no rise coming. That's it. To give anyone the impressinon George Osbourne has cut fuel duty is frankly misleading journalism.

  • rate this
    +119

    Comment number 3.

    Headline is wrong - fuel duty has not been 'cut', it stays the name at an economy crippling level.

 

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