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 202.

    Lets get labour back in they'l sort the economoy out,more immigrants, more150k a year non-jobs not to mention all the silly equality,elf n safety nonsense that we all have to go on a course for and while we are at it lets give the EU a few more quid and them poor asylum seekers lets give them a nice house even though they aren't gratefull

  • rate this
    -1

    Comment number 201.

    A repulsive and utterly ignorant statement. Nothing done against tax havens which are the real reason our Nation and indeed the Western world is bleeding just now.

    Pure evil from Osborne and the evil thugs who are behind tax havens. Only a fraction of this wealth would solve economic problems, create jobs and end the crime of poverty.

    The Rich still get thier massive tax cuts

    PURE EVIL.

  • rate this
    +2

    Comment number 200.

    great....so i can blow my 3p (wow) and save it to travel to look at the moneypit that is the upgrading on London roads and underground.....

  • rate this
    +4

    Comment number 199.

    Who is this government helping? Certainly not the poor and sick, they are much worse off. I work bloody hard more than full time, so i am supposed to benefit from their policies?

    I don't get any help I pay the same tax rate and public services have been cut, so technically things are worse for me.

    Somebody must be benefiting from their policies but i guess i can't see who from down here.

  • rate this
    +4

    Comment number 198.

    How can scrapping a fuel duty rise be considers a fuel duty cut!! i am sure they only put these increases in so they can rescind them later adn get a good news story out which makes the other bad medicine easier to swallow.

    The people who caused this financial meltdown should be the ones paying for it, not the taxpayer......

  • rate this
    +6

    Comment number 197.

    I expect this to be marked negatively, but I wish commentators here would remember that civil servants only enact the policies of the Government of the day - they do not set them - that it for the ruling party and their advisors. Civil servants are ordinary people who are also being hit in the pocket the same as self employed/private sector/unemployed/single parents/senior citizens etc.

  • rate this
    -6

    Comment number 196.

    176. shar281257
    1 MINUTE AGO
    Working age benefits are paid to those IN WORK as well as out of work. Tory backbenchers apparently 'love' this benefit cap. Come the next election I am going to LOVE emptying a pot of....... Censored.....over the first Con Dem that appears on my doorstep..
    ------------------------------------------------------

    I will let my German Shepherd answer the door!!!

  • rate this
    +9

    Comment number 195.

    Where is Gordon Brown the architect of our problems?

  • rate this
    +1

    Comment number 194.

    Stop wasting billions of pounds on foreign aid. It only ends up in the pockets of corrupt politicians and government officials. Stop all government payments to married people or for children. Getting married is a lifestyle choice and you should not have children if you can't afford them. Only pay benefits in vouchers so that the money can't be spent on booze, fags and gambling. Sack 300 MPs.

  • rate this
    0

    Comment number 193.

    people dont seem to realise it was the banks that got us in this mess and these tory toffs will make it worse,were still borrowing billions,hopefully people will wake up by 2015 and kick these coalition idiots out

  • rate this
    0

    Comment number 192.

    I agree, generally a surprisingly good speech. Am sure Labour will find much to hinder any proposed plans. Sometimes I feel theyoppose for opposings sake meaning good policy can get left behind in process of playing politics. Well done George, difficult day but it was your finest hour. A UKIP voter

  • rate this
    -45

    Comment number 191.

    Fuel duty should be doubled for the under 50s who are not disabled.

    They can use the money raised from it to buy all those people free bikes.

  • rate this
    +3

    Comment number 190.

    The best thing about the autumn statement was Ed Balls "Balls Up" at the beginning of his response. How anyone could contemplate voting for Labour when he would be the next chancellor is incomprehensible.

  • rate this
    +5

    Comment number 189.

    Balls or Osborne... geez! what a choice!... where's the leadership? Tired, uninspiring, overpaid, career politicians all of them!
    Targets: Unworthy Millionaire footballers (hundereds). Useless, Overpromoted Public Sector wastrels. Poorly-procured Private Sector Companies who dont deliver. Tax-evading Billionaires. I repeat: We need inspirational leadership in Britain... Osborne/Balls useless!

  • rate this
    +8

    Comment number 188.

    It's not a fuel duty cut. They are just not increasing it!!.

  • Comment number 187.

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

  • rate this
    +2

    Comment number 186.

    Rich being taxed the same as poor? Rubbish. The same % rate for someone earning £140k as £40k maybe, but in pounds and pence a world apart.

    Innovation and expansion must be encouraged and as hard as it is for some to realise, those taking the challenge will want reward.

    Raising tax rates will make those who could drive growth take a second look and not take the chance - we all then lose.

  • rate this
    +1

    Comment number 185.

    So Gideon sticks to ideology and dogma, its his last resort as his previous guestimations have all proved to be wrong. And for anyone bleating about how it's all Labour's fault, the financial crash was caused by the banking industry, who bankroll the Tories, yet have they been held to account over this?

  • rate this
    0

    Comment number 184.

    Yet another U turn as we slip into the abyss.
    Incompetent fools.

  • rate this
    +2

    Comment number 183.

    NemoMeImpuneLacessit
    Every labour Government has left office leaving the country on the brink of financial collapse and Tony/Gordon was no different. You can't blame the tories for this mess caused by give it away Gordon. When a patient has been run over by an 18 wheeler truck and then shot several time is it the ER doctors fault he hasn't made a full recovery within a few hours?

 

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