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
    0

    Comment number 82.

    Unbiased journalism??
    Andrew Neil's performance today is disgraceful. Agressive questioning is expected - but from a neutral position. Leave the politics to the politicians Mr Neil. Did you not heed one word of Lord Levenson's report?

  • rate this
    +4

    Comment number 81.

    On Fuel Tax:

    Chancellor: "The 3p a litre rise is cancelled"

    Fuel Companies "This means we are OK to increase pump prices by 3p a litre then, extra champagne all round for the Knightsbridge Christmas bash chaps"

  • Comment number 80.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -1

    Comment number 79.

    I understand the need for opposition to government policy, but I am so very tired of hearing Balls talking of the government's 'economic failure'. I rather believe it was his government's 'economic catastrophe' that got us where we are today. Throwing money at everything for 13 years while failing to save has its price. The only policy Balls understands is profligacy in both spending and rhetoric.

  • rate this
    +4

    Comment number 78.

    The headline of this article is unbelievably biased and misleading! 'Economy worsens'. No it doesn't, and the forecasts look good. Unemployment is looking good, and the deficit is coming down. Come on BBC, pay attention and report what was actually said not the biased left-wing version please. Thanks.

  • rate this
    0

    Comment number 77.

    KG 3 & whysonegative, you are both correct. Proposed Fuel duty was cancelled & not cut.
    Quantum5527, I was also expecting worse like you & pleasantly surprised.
    Tanglewood,True the devil is in the detail so let’s wait & see.
    Sam, the govt is doing that & the HMRC is looking at it. The FSR report by the BoE recommended action on bank, private & public sector bonuses etc. Working on it.

  • rate this
    +138

    Comment number 76.

    Many benefits are paid to people IN WORK as their earnings are so low. East Devon within the South West has a very low wage economy with very high house prices and rents. This will be a CUT in their benefits although they are IN WORK. They are doing everything they can - many with more than 2 jobs to make ends meet we should not penalise them for doing the right thing.

  • Comment number 75.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -6

    Comment number 74.

    UK debt to GDP at 100% of GDP in five years, well beyond the Rogoff "proof" that debt above 90% of GDP serves to contract output because of debt servicing. We need to get 5% of GDP immediately or £80 billion a year from tax increases or spending cuts to show willing. This is financial management of an order only surpassed in appallingness by Labour

  • rate this
    -1

    Comment number 73.

    @ Bulldog

    You are right, if anyone bashing Osbourne could come up with a better plan that could be implemented then please let me know otherwise lets leave him to do the job as I'm sure he does it better than anyone on this board could do!

  • rate this
    +7

    Comment number 72.

    "BLACK_PEARL
    Correct me if I'm wrong..."

    Yes you are.

    "Wasn't the aid some sort of signed agreement by Gordon Brown at the time which the country is having to honour ??"

    It was committed to by Margaret Thatcher in the 1980s. The manifestos of all three main parties in the 2010 election agreed to (finally) reach the UN agreement signed upto by Thatcher taht long ago.

  • rate this
    -13

    Comment number 71.

    I can't see that the economy worsens, as you say in your headline. the interest that we pay on our debt is down to £33bn that is good news. 3p off a littre of fuel is good but the chancellor should have warned petrol retailers to pass it on. The growth forcast although redrawn is still good. I time we all talked about the good points not the bad. then we may get out of this mess!

  • rate this
    0

    Comment number 70.

    If labour spent less time whining about the Government and more time being constructive perhaps they would help us all dig out of the hole they dug us into. Why don't they try and actually help? Ah, just remembered, Labour are incompetent buffoons, so perhaps if we ignore them, they'll go away.

  • rate this
    +30

    Comment number 69.

    I'm tired of the Conservatives talking as if welfare and work are mutually exclusive, thousands if not millions of people are in low paid work and need state help to survive. Its about time the Tories stop sterotyping all people on benefits as lazy scroungers.

  • Comment number 68.

    All this user's posts have been removed.Why?

  • rate this
    +4

    Comment number 67.

    1. The Ace Face
    11 MINUTES AGO
    Osborne should resign immediately before the entire UK sinks into the abyss!

    and what would you propose for Balls and his merry bunch who, lets face it, mismanaged the economy and took us on such a ruinous financial route, that our grandchildren will be paying? Remember it was Brown who famously said, 'no more boom and bust'.

  • rate this
    +8

    Comment number 66.

    I wonder how much longer George can continue skating around on the same patch of clingfilm thickness ice before it breaks & takes the whole of the UK with it.

  • rate this
    +5

    Comment number 65.

    When I've said before that the BBC likes to put a spin on things, in favour of government, be it labour or Tory, this story is a perfect example. The headline "Fuel duty cut" implies just that, that government is doing good by reducing fuel duty. What is actually the case, is they have U-turned on a rise after everyone hated on it. Present the facts straight please.

  • rate this
    +9

    Comment number 64.

    The increase in the tax allowance is very welcome as is the fuel duty freeze. But this should also have been accompanied by a large increase in the minimum wage, it would bring people out of the benefits trap and really would encourage people back to work and that =s more tax. Instead it just looks like he wants to penalise the poor and children

  • rate this
    -79

    Comment number 63.

    Sad that he had to pander to the lazy car drivers and cut fuel duty.

    The number of obese people in this country is crippling the NHS and will now continue to do so because of the Chancellor 's failure to act.

 

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