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
    +5

    Comment number 662.

    609.Ex Tory Voter
    'And there lies the teeny-weeny fly in the ointment that so many 'clever' fail to spot. No jobs. "Off benefits and into work" is utterly, utterly meaningless drivel whilst the number of job seekers exceeds the number of vacancies'

    That situation will not improve whilst we continue to blindly allow all and sundry to come here to work. Should have always been capped.

  • rate this
    -39

    Comment number 661.

    Cut the NHS completely and make everyone go private. Saves billions, and puts a halt on immigration in one simple swoop!

  • rate this
    +9

    Comment number 660.

    @630.omnishambles

    No my friend, Labour had cuts in place(due to sub-prime mortgages not Brown/Blair) that were at a level not to throw the economy into recession.

    The Tory's came in, decided for political capital to cut harder/faster. It was said at the time it would have the effect that it has had!

    Added to the fact they are targeting the most vunerable whilst protecting thier own!

  • rate this
    +9

    Comment number 659.

    Despite many people feeling the pinch and not doing as well as they may have hoped, the true cost of this recession falls on those who have lost their jobs. A 3 pence saving (or not increase) in fuel duty, or some additional capital allowances has little impact on them. They have lost a whole wage only to have it replaced by benefits, which have too been cut to pay for the recession.

  • rate this
    +6

    Comment number 658.

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


    -As opposed to "only" being 14% ahead of the Tories in the latest opinion polls which would equate to a 150 Seat Majority.

    The latest opinion poll puts the Tories on 28% lower than Labour at the last GE.

    Still plenty of time for Osborne's plan to work!!
    OK don't hold your breath

  • rate this
    -1

    Comment number 657.

    I think that people should think outside the UK box and look at the World issues, we have to keep a head of the game, so not lets be fooled by politicians scoring points off each other, no matter who's in power they would have to follow the same tight path to any recovery.
    Ed Balls did not look all that good in his reply, he must know the above to be true.

  • rate this
    +18

    Comment number 656.

    The general consensus seems to be that the current bunch of charlatans in power are inept and corrupt and should be ousted.

  • rate this
    -15

    Comment number 655.

    @604 try getting your facts straight,The labour government took powers away from the Bank of England to regulate and gave them to the FSA who were useless, they overspent which meant that when the recession kicked in there wasn't the money available to spend on infrastructure projects to help insulate the effects. What about the individuals who also over borrowed in the first place?

  • rate this
    +9

    Comment number 654.

    Our middle-eastern cousins would be riding about in pick-ups firing machine guns into the air shouting "god is great" if their chancellor had said all of this nionsense.....

    Instead we British simply tut and sigh and shake our heads and say "I am in half a mind to write to my bloody MP....I am livid"....and pour another cup of tea.

  • rate this
    -3

    Comment number 653.

    it's all very well Mr Clegg being disappointed about no mansion tax.......when is he going to realise that a mansion tax is totally unfair,(just as the minimum alcohol pricing proposals are also )?

    People who live in valuable properties already pay what amounts to a mansion tax, because the council tax on these properties is much higher than on less valuable homes.

  • Comment number 652.

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

  • rate this
    0

    Comment number 651.

    Olympic games did not help, the economy is getting worse.
    Neither Labour or Conservatives can pull the country out of recession.

    The main problem is EU and its unsustainable policies.
    Only dealing drasticly with EU problems - exiting that failed project will get UK out of the crisis. And will help Europe get to senses.

  • rate this
    -1

    Comment number 650.

    All those soldiers coming back from wherever can man/woman the borders. Stop the illegal immigrants / the spongers / the wasters blocking up our NHS. Sound good? Little Englander I know but I'm paying my share.

  • rate this
    +1

    Comment number 649.

    Really The UK economy is no better than the rest of The EU, in fact worse than that of Germany.
    Isn't it now time for Mr Osborne to stop bleating on about the weak Eurozone, when we are in a similar position?
    Time to join the rest of The EU and sort this mess out, rather than sit on the sidelines.

  • rate this
    +6

    Comment number 648.

    While our Chancellor and all his London cronies have a fixed definition of our economy which includes us in an International race to oblivion, where every natural life process is extinguished through poisoning and habitat destruction, we will have to endure years of this periodic bleating.....until reality bites, as in Spain, Greece, Ireland, Italy,

  • rate this
    +5

    Comment number 647.

    theres many people on benefits that desperatly want to work.making people retire later is pointless...because if you lose job after 60 your stuck on jobseekers allowance until you retire. kicking out these euro scroungers would be a start.

  • rate this
    -6

    Comment number 646.

    An excellent speech. Of course we are still in debt. The economy is like a tanker out at sea. Mistakes made by Labour take time to reverse. No increase in fuel duty. Benefits to no longer rise with inflation, and a slight increase in tax allowance and rise in 40% threshold. ALL GOOD THINGS. Unless u r a scrounging benefit cheat thinking u r better off on benefits than taking a job.!!

  • rate this
    +7

    Comment number 645.

    Re 610. Jimbo
    Osborne’s stewardship of the economy shows the flair and insight of a medieval quack surgeon who, having noticed that his patient has failed to show any sign of improvement after being bled for an extended period, decrees that the only possible remedy is to bleed him some more. Paul Krugman’s analogy, not mine. But Paul’s only an economics Nobel laureate, so what does he know?

  • rate this
    +19

    Comment number 644.

    The 'Charge of the Light Brigade' was on Sky the other night. As the survivors hobbled back after the slaughter, the toffs in charge all tried to pass the blame onto each other. It reminded me in a sad way of where we're currently at, and how this feckless 'ruling class' cabinet will rip each other apart as things get even worse. Some things never change.

  • rate this
    +5

    Comment number 643.

    This is loathsome the whole onus is on bashing and brutalising the people least able to defend themselves.
    The Working poor, the unemployed, the disabled the sick.
    Start your Austerity in Westminster suspend MP's pay for a year pay them NOWT until we are out of this mess, then tell me we are all in it together!

 

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