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
    +7

    Comment number 102.

    The Muppet Show 2012

  • rate this
    0

    Comment number 101.

    71.CaptainJack
    'time we all talked about the good points not the bad. then we may get out of this mess!'

    I'm afraid talking doesn't solve anything, we need action! As for talking about the good points and not the bad, do you suggest we just ignore the bad points and brush them under the carpet? I would say the bad points are exactly what we need to talk about and take action on!

  • rate this
    +3

    Comment number 100.

    Here are the latest figures on budget deficits. Just shows The UK should be downgraded to the lowest status! You can hide it, but in the end it is all going to blow up sooner than you think!

    Germany -1.0
    France -5.2
    UK -8.3
    Italy -3.9
    Spain -8.5
    Netherlands -3.7

  • Comment number 99.

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

  • rate this
    +113

    Comment number 98.

    Nothing to help the hard working employed and self employed, just inflict pain upon those who are on benefits. Sorry George, does not work for me.
    What I am worried about is the victims of over zealous civil servants victimising those already paying the right amount of taxes and claiming the right amount of benefits but leaving alone the likes of Starbucks.

  • rate this
    -5

    Comment number 97.

    Are you sure not putting 3p on fuel is a good idea? Who's going to pay for the baby?

  • rate this
    0

    Comment number 96.

    #1 The Ace Face
    Osborne should resign immediately before the entire UK sinks into the abyss!

    After todays forecast can we sink any lower than this!

    Just goes to prove how out of touch the Privately eduacted MP toff's are with society as a whole!

  • rate this
    +1

    Comment number 95.

    At no.38... a look at how many full time jobs have been lost might dampen your debate... and please don't quote the part time underemployed. This lot fiddled unemployment figures last time with 'seasonally adjusted" rubbish. Using part time employees to count as a reduction in unemployment figures is just their most recent lie.

  • rate this
    +3

    Comment number 94.

    This is the most dangerous Chancellor the UK has ever had - he has raided the Royal Mail Pension by £28bn, raided the NHS budget by £1bn, raided the QE interest by £37bn, and yet still added £150bn to the National Debt taking it to over £1tn. Yet still he sees this as a fantastic achievement, His Con is over - people can see right through his failed Policies. Growth non existant, borrowing up

  • rate this
    -1

    Comment number 93.

    72.Trout Mask Replica

    Yes Trout its a bummer.. politicians too free with OUR cash

  • rate this
    -49

    Comment number 92.

    This was a good statement with tax reductions and increases in allowances together with cuts in debt financing and public costs. The mess that the previous govt created through debt is being sorted out by this govt however it will take until 2017 before we run a surplus and start reducing debt. Tax reductions: Those who have been doing all the paying to get us out of this mess should be cut first!

  • rate this
    +8

    Comment number 91.

    "Autumn Statement: Fuel duty cut....."

    NO, it isn't being cut, it is just not being increased.
    Yet another misleading headline from the BBC, one of several today and many during this week and the recent past.
    What the hell is going on BBC?

  • rate this
    +5

    Comment number 90.

    NO-ONE should be allowed to run for government until they've spent at least 20 years running/managing a SUCCESSFUL business in the real world. These freshly-scrubbed, pink-cheeked posh schoolboys haven't got a clue, or any real experience whatsoever. They are the last people who should be running things.

  • rate this
    +5

    Comment number 89.

    I weish people, including the government, would understand that we are never going to clear the deficit unless the government significantly increases its revenues.

    That means huge corporations are going to need to pay more tax, so are rich individuals.

    But at some point so are 'we' the ordinary British Public.

    And no its not fair, but we're not in a 'fair' situation.

  • rate this
    +8

    Comment number 88.

    I would have liked to have seen a Mansion Tax, surely much fairer to take from people buying £1m+ properties than pensions?

    If you can afford a £1m+ house at the minute, you can afford the tax to go with it.

    Ultimately we all are losing out together, except the bankers and pay day loan companies, they are doing a roaring trade ripping us of with huge interest rates.

  • rate this
    -18

    Comment number 87.

    A shame really - if Labour had the right Miliband and a decent CotE (not Balls) it would be in a strong position.

  • rate this
    +2

    Comment number 86.

    Not much longer and with any luck the wimps that call themselves the public in this doomed country will say enough is enough...oh no of course that won't happen to busy wrapping themselves up in kate and the baby !!

  • rate this
    0

    Comment number 85.

    'though I agree with Sam @11 sentiments problem is successive govts have concentrated on Financial Services as the main source of income for this country. Problem is it is also comparitively easy for such companies to move their operations abroad. They just need office space nothing more. So unfortunately they have us all by the short and curlies and they know it, hence bailouts and bonuses.

  • rate this
    +1

    Comment number 84.

    We're all in this together... Seems pensioners aren't with 2.5 time more increase than anyone else... Anyone else feal like George and Dave are high fiving each other saying the "Rich need to pay more, luckly we're not in the rich category, were super rich and are thus exempt from paying more". The Mansion tax would have been a way to at least make it seem fair...

  • rate this
    +7

    Comment number 83.

    Shame on you, BBC, where is your committment for honest reporting. We expect lies from politicians but honesty from the BBC. Not making a forecast 3p rise is not a cut. It would have been more honest to say FUEL DUTY STAYS THE SAME AS CHANCELLOR ABANDONS PROPOSED RISE. Is it the BBC's new role to be spin doctors for the government?

 

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