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.


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

    Comment number 902.

    The problems facing the UK are global. There is little Osborne can do to revive the economy whilst the EU crisis undermines business confidence.

    Like it or not the tories believe in strict control of public spending and this will continue until 2015. However if they don't act on tax avoidance by multinational companies and the rich then they become as unpopular as the Thatcher regime.

  • rate this

    Comment number 901.

    Guess what HYS manipulating ratings again,Its doing the opposite of what Im rating.
    Wing nut. I know someone reported for benefits fraud several times, goes abroad, phones social security saying his car broken down,also reported for drink driving but police do nothing.In Germany the jobless get benefits for one year only then they have to take any job they can get,this should happen here

  • rate this

    Comment number 900.


    So the banks crashing and the UK taxpayer having to bail them out to the tune of £500 billion, (estimate various up to £1.3 trillion), was just a figment of our collective imagination then.

    The Government has borrowed around £125 billion to cover this, this is what we are paying for with the austerity measures.

    The Tories wanted even less restriction on the banks than Labour.

  • rate this

    Comment number 899.

    Somehow I just don't believe these statistics.
    Borrowing to go down when more and more will be out of work and in need of help while less and less will be coming in because firms are going bust and paying fewer staff.
    It makes as much sense as giving bankers huge bonuses for fiddling or letting big corporations pay less tax because - well you tell me!

  • rate this

    Comment number 898.

    The 3 biggest Economic mistakes of this government were the VAT rise, increases in Fuel bills/duty and failure to collect/close loopholes in TAX. I don't know about anyone else, but in between trying to pay my Gax/Electric and fill my car up, I don't have much left in my wallet to mount this elusive 'stimulus' the consumer public are are being relied on to deliver...

  • rate this

    Comment number 897.

    "There will be more money for roads, London's Underground and schools"
    = All you do is deficit spend. How about some financial restraint guys, we're insolvent.

    "Turning back now would be a disaster"
    = So we must spend more? Mr Osborne are you serious, really?!

    " But we must show we're all in this together."
    = You mean YOU & parliament put us all in this mess & need our £s to bail you all out.

  • rate this

    Comment number 896.

    I wonder why they seem to be pushing for civil unrest?

    Who benefits out of that?

  • rate this

    Comment number 895.

    We were told that about north sea oil and gas but it never happened like they said it would

  • rate this

    Comment number 894.

    @845.Rotherham Lad
    The gap between top and bottom continues to grow.... Unlike the rest of the economy!
    Aah - Tory Britain!"

    Rich poor gap under Labour had become historically wide but yes, its still growing under Tory relentlessly. Austerity for the masses, prosperity for the tax avoiding, "self-certified pay increase" wealthy.

  • rate this

    Comment number 893.

    Plan A has deepened and prolonged a recession. The people of this country will never forget the lies perpetuated by this coalition.

  • rate this

    Comment number 892.

    870. Its small minded drivel to pander to the Rightwing press pea sized brains. It suits the lazy minded people who read these 'newspapers'

    There are lazy unemployed' always will be' they mirror the idle Rich. But then most unemployed just want a chance to stand on thier own feet but we have an unjust system preventing them doing that. Just as there are decent rich people too.

  • rate this

    Comment number 891.

    Enjoy Christmas this year, go for broke, its not going to make any difference in the long run. This government are determined we arent suffering anywhere near enough. I bought a turkey the other day with my husbands bonus... it cost me £15. That was his entire bonus gone. Thanks Osborne, for nothing, you even managed to take from babies as well.

  • rate this

    Comment number 890.

    You know, lets try something different just like Hong Kong did a while back.

    Like LOWERING taxes to stimulate the economy. LOWERING corporation tax to a level that competes with neighbours so we actually attract investment.

    People will actually buy things if they have more money to spend. Constantly raising taxes just makes people spend less.

  • rate this

    Comment number 889.

    instead of running osbourne down how about giving gordon brown some stick hes the bloke who caused most of this chaos.Ive always voted labour but certainly not again

  • rate this

    Comment number 888.

    Most of the Welfare budget goes to in work benefits .
    I have to say I am surprised that even Gideon feels that this should be increased for those earning over £3000 a day while cutting the amount paid to those on £3000 a year.

    Still perhaps that's what He meant by all in it together!

  • rate this

    Comment number 887.

    this government makes me laugh accusing labour for borrowing when thier doing the exact same and they only cancelled the extra fuel duty rise because they knew that they might as well as not bother with the next election.

  • rate this

    Comment number 886.

    793: Add no one from Goldman Sacks on British soil and I think your on to a winner !
    792: Maybe thats what they want ? Institute emergency martial law and a Proconsul/President/Prime Minister for life, backed by an American Peace keeping force, sounds a bit third world, but the World is a smaller place these days....

  • rate this

    Comment number 885.

    Austerity, for the working and middle classes, is not only GROSSLY unjust, it is what's killing us (i.e. the economy). Austerity is the diametric OPPOSITE of what we should be doing. The KEY to recovery will be to restore middle (i.e. working) class income and wealth. High economic equality and an attendant large, well-to-do consumer base is what drives commerce and a healthy economy.

  • rate this

    Comment number 884.

    As usual too half hearted. It is fairly pointless permitting 1% rises in benefits etc. May as well have been a freeze. Tax thresholds need not go up either. If you pay 40% rate you really make so much you need no let off from tax. Road building is always bad, there has been no increase in driving for a decade. Fuel tax should have gone ahead, not is just politicking.

  • rate this

    Comment number 883.

    Reality is everone was to blame, we saw our friends buy a house make a fortune in months and wanted some for ourself. Then we had this majic asset which was making us more money than working did so we used it to buy things we couldn't otherwise aford. Then the marekt collapsed.
    Phil and Kirsty Alsop are about as much to blame for the recesin as us bankers...


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