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
    +4

    Comment number 462.

    " a raid on the pensions of the wealthy"

    ===

    Cutting the amount that may be paid into a scheme tax-free is not such a "raid".

    It is reform of tax allowances.

    The former would be taking a share of any investment returns etc.

  • rate this
    +6

    Comment number 461.

    Repeating the same mistakes over and over again just shows Osbourne is incapable of learning and with that conclusion one comes to the realisation that all of us will be paying for his inability to understand or profit from experience for a long time to come.

  • rate this
    +68

    Comment number 460.

    Well I am now totally fed up, run a small business, struggle to pay our bills and our tax bills, when will it all end, we deal with the development industry was showing flickers of light, social housing builds under pay on everything.Bigger schemes go to multi national companies not small local firms.

  • rate this
    +5

    Comment number 459.

    Its squeeze us till we squeak time but give it 18 months and they will boost the economy to make things appear better for the election in 2015. Dont be fooled and dont let Clegg get away with propping up this govt with an 1820 ideology in the treatment of its citizens.

  • rate this
    +4

    Comment number 458.

    What amazes me is that we are allowing a bunch of self serving criminals to continue to run this country into the ground. I call them criminals because if anyone else commited fraud, stole and conned then they too would be labled as such. What is really needed is a complete overhall of the government and financial systems that serve everyone not just a select few.

  • rate this
    +16

    Comment number 457.

    I can't for the life of me understand this country.
    1. We still allow large numbers of immigrants to come here for non-existent jobs when our own people can't find work.
    2. We pay out benefits for children who live in EU countries.
    3. The Overseas Aid budget is ring-fenced, when half the countries are probably in a better situation than the UK.
    Get a grip Cameron! Get it sorted or ship out.

  • rate this
    0

    Comment number 456.

    @419 and Thatcher the milk snatcher inherited a bankrupt country from guess who? this is all just history repeating itself

  • rate this
    +18

    Comment number 455.

    It's the areas and their inhabitants that actually made Britian Great (by building/making things), that again are being hurt by the Tory's.

    The South East centric, financial services Tory mantra sickens me to the pit of my stomach.

    Rather than nice glass fronted offices in the Thames valley what about investing in the industrial areas before skills are lost for good!

  • rate this
    +2

    Comment number 454.

    415: Except now of course it is the USA via Goldman Sacks doing the discreet annexing of foreign countries and their natural resources.

    All hail Imperator Obama !

    Ha ha !
    You people are so obvious !

  • rate this
    -6

    Comment number 453.

    How apt that the BBC is reporting about the great Smog affecting London. Apt as the UK is still suffering from Gordon Brown's toxic legacy of debt. Dont blame the people trying to clean up the mess

  • rate this
    +10

    Comment number 452.

    "423.Boro Jonesy

    Sick of paying taxes to keep you all!"

    Well buy UK made goods then to provide jobs - put up or shut up, you can't have it both ways. You are either part of the solution or the problem, your choice. The unemployed are not responsible for unemployment, employers (or lack of them) are. That is an inescapable fact.

  • rate this
    0

    Comment number 451.

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

    Anyone else thinking its just been dealyed?

    So most likely will rise sometime in the next budget no doubts.

  • rate this
    -2

    Comment number 450.

    Public spending is up 7% YTD: there have been no absolute cuts. Public spending as a % of GDP rose about 10% points under Labour. Shame on Labour for inflicting this on our country, and shame on the Coalition for not cutting back public spending much, much more and much, much sooner.

  • rate this
    +6

    Comment number 449.

    Those of us that can't work ( I worked from 1972 until 2009, many years in the service of my country) are being cast on to the scrap heap once again. The cancelling of the scheduled 3p rise in fuel duty will be of no benefit to us at all. A rise of 1% in benefit rates is pathetic. Utility bills have already risen by around 9%. This government wants to starve us out of existence.

  • rate this
    0

    Comment number 448.

    @434 - again, I agree with you. I just wish Osborne and Cameron would stop trotting out the "we're all in this together" line. They must think if they say it often enough, we'll believe them!

  • rate this
    +1

    Comment number 447.

    #425

    of course GO looked competent in his delivery he has had a week to write the script aided again by some wild OBR figures, hope they are better than the last lot that said we would be in growth now, anyone can make a sows ear out of a sows arse.

  • rate this
    +5

    Comment number 446.

    Apparently we want an alternative to DC in touch with "the people", not Oxford Educated, wealthy or blue blooded (not sure how he is anyway).

    The nice bloke everyone talks to down the pub who knows everything is probably in touch with "the people" but it does not necessarily follow that he would be a stellar leader of the 6th largest economy in the world.


    It's a tough gig.

  • rate this
    -2

    Comment number 445.

    Ed Balls can talk. Wasn't it his lot who helped get us in this mess in the first place?

  • rate this
    +6

    Comment number 444.

    My energy supplier just wrote to say my best deal is to pay them a DAILY standing charge of 67p to receive gas and electric, that's without the cost of the actual fuel and without any investment in the infrastructure. They don't pay corporation tax and Osbourne is getting his VAT out of that too. Grow a pair and nationalise the industry.

  • rate this
    +3

    Comment number 443.

    @355.NonLondonView
    So which British car are you going to buy, would that be a German Rolls Royce or Bently, or perhaps an American Vauhall or Ford, perhaps an Indian Land Rover or Jaguar. I buy from amazon because they are the cheapest, I can't afford more. Osborne spanking his rich friends by not allowing them relief on massive pentions oh boo hoo for them Champers all round.

 

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