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 1122.

    1107.Dave1506
    However if your account is in the cayman islands or Bahama or the Channel islands you are safe, now remind me is George Osborne's offshore money in Switzerland or somewhere he didn't name?
    ++++
    If you know Osborne has a stash offshore then you tell us, or did you just make it up?

  • rate this
    -3

    Comment number 1121.

    He has lowered the corporation tax which is a good thing. He should have gone further a sub 20% corporation tax would see a lot of corporations locating here. Low tax, the english language, the city of London and GMT (these are our competitive edges we need to use them) would be a big pull for most multinationals. Most on here will not understand the positive effect this would have.

  • rate this
    +3

    Comment number 1120.

    1101 Entirely your choice of course, but I invite you to read my earlier analytical comments. Simple CSE-level maths that most people should be able to understand. The conclusion is even simpler: unless public spending in this country is cut - and cut a lot - we will end up like Greece. Labour's 10%+ points increase in public spending as a % of GDP is unsustainable.

  • rate this
    +2

    Comment number 1119.

    Now, is there anyone out there who can make the link between the last 5 years of misery and the live-now-pay-later years pre-2007? Any link between bonus-bankers, house-price bubbles, lack of productive industries and the facts that Osbourne presented today? No? Ah, that is why there are no learners and we just carry on as before and let future generations pay? Alright...

  • rate this
    +4

    Comment number 1118.

    Labour have been nothing but hypocritical, they pretend they care about people in this Country when all they really care about is wriggling their way back to Downing Street so they can live their champagne socialist lifestyle once again. I just hope people with brains see the two Lefty boys on the front bench for who they really are

  • rate this
    +4

    Comment number 1117.

    1102. Adam- Funny how you bring up the fact that people misspell his name. He changed his name from Gideon to George to make himself more acceptable, you can put lipstick on a pig but it is still a pig. He and Cameron are the leaders of a party that mirrors the Peter Lilly's and Thatchers of the past. A party for the few not for the many.

  • rate this
    -3

    Comment number 1116.

    What I find outrageous is the BBC's reporting of it... the H1 and H2 of the number one story on the Home Page is "Benefits Squeeze" and "missed targets"... the Autumn Statement was about so much more than this. What about the continued rise of the Personal Allowance Limit, the fact that we are saving £33Bn on debt repayments had we not cut back on the deficit, new funding for schools, etc, etc.

  • rate this
    +5

    Comment number 1115.

    A big factor in are current situation is the lack of ability's within the government and government controlled sectors. I am aware of various public sector departments taken over by private sector company's where these departments are filled with high paid do nothing staff. Company's filled with none jobs, 7 directors for a 35 staff company, 3-7 public sector workers doing the job of 1 private

  • rate this
    +4

    Comment number 1114.

    This country has too many people for full employment. We expect a decent minimum wage, so poor countries out compete us on labour costs.
    A rich country needs a small highly trained workforce to produce high tech goods. We allowed millions of unskilled workers into a country which already had too many people on welfare.

    Overcrowding just increases living and welfare costs. We're in a right mess.

  • rate this
    +4

    Comment number 1113.

    #1090

    You are exactley the type of person that this stupid nasty no nothing government are slaughtering. They are a bloody disgrace and people actually believe the non sense they spout about having no money. They have money all right but only for their pals

  • rate this
    0

    Comment number 1112.

    do like the wealthy, screw as much as you can, then get out of here

  • rate this
    +9

    Comment number 1111.

    "1079.DavidinUSA
    It's not austerity - that has Dickensian overtones."

    From where I and millions are standing this government *is* Dickensian - the poor being blamed for being poor and being expected to be grateful for the privilege. E.g. as of last week Councils are no longer bound to house families - see "Kathy Come Home" (BBC 1966) for the inevitable result of that.

  • rate this
    +4

    Comment number 1110.

    He's failed,his previous commitment against the figures show this.He needs to make up his mind,austerity or spend the way out,I don't mind either but the bumbling and fudging is ok for him and his wealthy cronies not for the tax payer,make a decision for Gods sake or go!

  • rate this
    +3

    Comment number 1109.

    I think the government doesn't really of know what's going on in the real world. People have learnt a lot about being in debt and the risks they've taken in recent years and are much more careful how they spend their money. Consumption for the sake of it is dead. The governments will now have to learn how to deal with this new world order.

  • rate this
    +6

    Comment number 1108.

    Never have so few, done so much to cost us so dearly.

    Truly sad that the poor, the hard working and the disabled are paying the price again and again and again.I doubt Osborne ever has to choose between feeding his family or heating his home.This is a govt of selfish self-serving incompetent idiots.If I made as many mistakes in my job as they have I would be sacked.Growth? He hasn't got a clue!

  • Comment number 1107.

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

  • rate this
    0

    Comment number 1106.

    The approach of the present government is like someone who finds themselves massively in debt, and then refuses to borrow just enough to pay for shoe leather, commuting costs and presentable work clothes, to keep working. They then lose their job, and the debt just gets worse with no end in sight.
    Please let's watch incomes as well as outgoings?

  • rate this
    +6

    Comment number 1105.

    Minimum wage a realistic amount people can live off, not pocket money for a 16 year old! Osbourne is a fool and cant see whats under his nose, CUT fuel tax by 10p a litre and people can go further for the same price and them far off jobs are then worth taking. ALL foreign aid stop and stop paying the EU to spend on any guano they want without having to answer to anyone.
    Oops thats the real world

  • rate this
    -1

    Comment number 1104.

    This shows is just how deep a mess Labour got us in. Balls then has the unbelievable audacity to tell Osborne he's lost credibility! That's akin to Hitler calling a child a mass murderer because they just stepped on a spider! That a party that raised taxes to an unbelievable level and STILL got the nation into massive debt manages to attract votes shows we definitely need to invest in education!

  • rate this
    +5

    Comment number 1103.

    Why are we using this weird measure of debt vs GDP nowadays ? What does it even mean - which debt, measured how ? The odd thing is that "austerity" cutbacks tend to reduce the GDP figure faster than the debt (as we've seen in several Euro zone countries), so the measure gets worse, so the government cuts back more, so... in other words a nice feedback loop.
    Who chose this measure, and why ?

 

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