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
    +8

    Comment number 122.

    "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"

    Ed Balls - you are a disgrace.13 years of your Gov't left the UK in chaos yet you constantly gloss over this fact vying to get back into power at all cost. You and the rest of Labour are unsuitable to Govern the UK again.

  • rate this
    +19

    Comment number 121.

    I've just checked. Every developed country has a national debt. The ones that don't are poor anyway. This begs the question "Who is lending all this money?"

  • rate this
    +4

    Comment number 120.

    This is generation specific. The baby boomers caused this financial mess and absolutely will not pay for it. Instead they want to spread austerity to everyone, have future generations pay for it.

    And yet they still have all the best jobs. 70 something year old politicians and CEOs who refuse to retire.

    Their parents fought for their future, but they were utterly selfish toward their kids.

  • rate this
    +2

    Comment number 119.

    Forget Osbourne, Ed Balls and the rest of the opposition front bench had a shocking day!

  • rate this
    +6

    Comment number 118.

    yet again people who are on benifits due to illness and disabilities have to suffer more cuts. people who have worked all their lives and cannot work for no fault of there own are classed with others who have never worked and who dont want to work. i think the goverment is way out of touch and will suffer at the next election.

  • rate this
    +21

    Comment number 117.

    Can we have a correction to the BBC headline about a 'Fuel Duty Cut'.
    There has not been a cut, but merely the scrapping of a proposed increase.

  • Comment number 116.

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

  • rate this
    -37

    Comment number 115.

    This government along with the previous one got us into debt we have to pay to get us all out of it through no fault of our own. After all if we get into debt the whole country does not help us. The so called expert are getting us more into debt, lets get rid of them and try some new ones they could not do any worse.

  • rate this
    +3

    Comment number 114.

    Dennis Skinner MP comment to Mr Osborne was spot on. He talks the talk but doesnt walk the walk and he tells lots of fibs along the way. Mr O did not want to respond to this saying that it was a PERSONAL attack ! Surley thats his job isnt it !

  • rate this
    +4

    Comment number 113.

    I haven't seen one benefit for all these austerity measures that were introduced.
    I still see the rich getting richer, the poor poorer, those on middle incomes put to the sword , 'As we're all in in together'.
    A phrase that may well be the epitath for this boys own misadventure that has been the coalition.
    But we've still got money for MP's pensions unlike the rsst of the public sector.

  • rate this
    +32

    Comment number 112.

    These comments demonstrate exactly why the public should not set economic policy.

    Several armchair economists have views that tax rates should rise and fuel duty cut without explanation as to why this will not impact on competitiveness (tax rises) or how to pay for it (fuel duty).

    It would be nice that to think we can have what we want without consequence but that's what got us here.

  • rate this
    -2

    Comment number 111.

    Oh and I forgot, all the TV chefs! How many of them are there?

  • rate this
    +4

    Comment number 110.

    Banks got us into this mess, just wondering when they are going to start paying back their loans?

  • rate this
    +16

    Comment number 109.

    So let me get this right. austerity extended to 2018, debt cutting targets missed, economy shrinking, another ram raid on benefits and pensions, government spending at record levels and what does Osbourne say? "Turning back now would be a disaster". Seriously?! The man is an imbecile and is the biggest threat to the welfare and security of this country. Get him out before there`s a civil war.

  • rate this
    +8

    Comment number 108.

    "How is it "fair" to appropriate three-quarters of anyone's income?"

    It isn't, which is why that doesn't happen. 75% would be levied on income OVER £40k. So, e.g. if you earned £41K, £1K would be taxed at 75%. So no one is ever worse off for earning more.

    I wish we could get away from this unhelpful rhetoric of taxation as punishment, btw.

  • rate this
    -3

    Comment number 107.

    Oh dear the right wing nutjobs are out in true force today. Can't win the argument so resort to name calling in a hope to cover up the incompetences that your party is digging us deeper into. take a bow Tom Dundee

  • rate this
    +10

    Comment number 106.

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

    --------

    Yeah, because public transport is packed with slim, healthy people!
    When will people realise? The price of fuel effects the price of everything! Should have been a real fuel duty cut.

  • rate this
    +3

    Comment number 105.

    are we "all in this together" yet? everyone in the big society all paying their bit now? no more tax avoiders from today? the rich being taxed at the same % as the poor today?

  • rate this
    +3

    Comment number 104.

    28.Dirk
    Just now
    What hold does the British government have over the rating agencies? We still have the highest rating, while other countries have their ratings slashed every so often.
    =
    The Control of the City of London & a dozen other tax havens....

  • rate this
    -10

    Comment number 103.

    Fuel duty not going up is the main thing though i doubt this budget will affect many people either way.The loony left seem to be sulking about benefits but if they hadn't flooded the country with immigrants then not as many people would need them and their would be enough in the pot to cover the cost of our own scroungers.Ed balls could only make a living in politics or as a call centre manager

 

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