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
    +6

    Comment number 1142.

    I agree with Muishkin, its simple maths if not enough people are working and putting money in the kitty how long is the kitty going to last.This island has become an easy touch for people who want money for nothing and we can't get rid of the undesirables and must give them a good life while they are here, even though they want to kill us!!!!!!

  • rate this
    +8

    Comment number 1141.

    mr osbourne is once again going to squeeze everyone else again but he never thinks of squeezing the MPs of their expenses. The average person has to provide for themselves everything they need for their job but mps get houses and outher benefits at our expense, This should be cut immediately and that would save millions

  • rate this
    -6

    Comment number 1140.

    We need to increase, not reduce, immigration, as immigrants produce wealth. That is what we are told. The fact that the economy is not producing wealth for all must be due to a shortage of immigrants. Or is someone going to argue that immigration is a financial burden?

  • rate this
    -4

    Comment number 1139.

    Why should those who earn more pay proportionally more? Using a simple percentage they already put more in than those who earn less. That they can afford it is no argument, as they likely have higher living costs. And before you say that is their fault, if you were earning large sums of that order, you would also spend to your income. That is a fact of life.

  • rate this
    +2

    Comment number 1138.

    1120 - I like your style but to say we will end up like those other economies is a little inaccurate but, at the same time a little bit plausible. Our retirement ages are older, our tax system more rigorous and our public sector far more organised (if far from perfect). People feel the need to express their thoughts and opinions on one of the few forums that give them a fair chance to do so.

  • rate this
    +8

    Comment number 1137.

    Thanks to the Tory Muppet Show as a school teacher I have to leave the UK to work overseas with my Wife+6 month old baby girl as there is no work! Cost of living/bills going through the roof and cannot even afford to heat the house for my family! My grandparents must be turning in their grave for the country they fought for only to find her grandson having to leave to find work! Disgraceful...

  • rate this
    +9

    Comment number 1136.

    This government could choose to tackle tax avoidance on a grand scale. They could try to help ordinary people who work but don't earn enough. They could tackle the soaring price of fuel that goes into the profits of energy companies. They could help all schools and not some schools. But they won't, they'll bend to the will of their unelected mates in big business instead.

  • rate this
    -6

    Comment number 1135.

    Govt wants us to make 'rational' lifestyle/spending decisions, to create adaptive market equilibrium within a stable economy. State ownership, free higher education & healthcare, state pensions, and state welfare provision stop this. They must go. Government won’t reflate the economy by spending what’s required on infrastructure projects, till the structural adjustment programme is complete.

  • rate this
    +6

    Comment number 1134.

    They are also renown for not kick starting the economy. Notorious for their economic policies. Just look at 80's.
    Under Osbourne we will not see a recovery for years and many will suffer.
    The worse CoE in my lifetime.

  • rate this
    +6

    Comment number 1133.

    Osbourne's Plan A has failed, he has not reduced government borrowing nor has he reduced the deficit. What he has done is reduced the highest rate of tax for his cronies from 50 to 45% and hit the poorest with benefit freezes.
    This will not change as party dogma dictates it will be carry on regardless that its not working.

  • rate this
    +54

    Comment number 1132.

    Overseas aid should be significantly reduced until we are in a better financial position and have eliminated the poverty in our own country.

  • rate this
    -2

    Comment number 1131.

    Yet again the folly of the previous government is laid bare.
    The medicine is unpleasant, but there is little alternative. You only have to look at the club-med countries to see the results of living beyond ones means as a country.
    The sadness is that this government has made all the necessary but unpopular choices that will put the country back into health, but will pay at the polls.

  • rate this
    +13

    Comment number 1130.

    I`ve just had to put my heating on - it has probably cost me a fiver already and its only been on 2 minutes. Re nationalise gas electricity and water and we would not have to destroy peoples lives. Shareholders of these once state owned companies are drawing massive dividends and sitting in the caribbean while we freeze.

  • rate this
    -1

    Comment number 1129.

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

    EUp: But getting us out of the "EU" would, I believe, help.

  • rate this
    +6

    Comment number 1128.

    1086.wvpTV
    'We' went wrong by believing those who said we could live a lifestyle beyond our means. Started with Thatcher & contined with Blair. It was obvious that raising expectations by selling off assets could only be followed by turmoil/hardship, but most people are barely numerate and proud of it, and didnt want to hear. So Blair kept the merry go round spinning with credit. Now we pay.

  • rate this
    +5

    Comment number 1127.

    All major companies head hunt. They look for people who have a background in their industry, tried and tested in the real world, with years of knowledge and experience in their field.

    We vote for politicians. Get Gideon Osborne as our chancellor. Then wonder why the economies screwed.

  • rate this
    +3

    Comment number 1126.

    If Brendan Barber had lost someone to Mental Illness and self harming perhaps it would not seem so clever to use the term in reference to the autumn statement.Intelligent comment from the TUC could have included information on the increase in suicides due to the recession and unemployment and how increasing and extending the misery will make this worse.

  • rate this
    +1

    Comment number 1125.

    give every unemployed person £1m but tell them they got to spend it all in one year and have nothing to show for it at the end . sound stupid ? it would certainly improve the retail figures and we would be no worse off than we are now . they certainly wouldnt be claiming benefits would they

  • rate this
    +2

    Comment number 1124.

    Osborne's policies have been an utter failure. Hardly surprising from a man who has been featherbedded in privilege from birth, has never held a job in his life and is totally unqualified to preside over the economy, a position he gained not through any ability but simply by the accident of being born into a wealthy family.

  • rate this
    +2

    Comment number 1123.

    The true reason we are all up the creek without a paddle (for the moment) is due to interest.

    Interest is a crime. It says so in the bible (and I'm not religious btw) and the Queen swore to uphold the laws of the bible. Is she?

    Check out "Mathematically Perfected Economy (TM)" before it's too late! I urge you.

    Remove interest remove problems. Time for CHANGE - REAL CHANGE.

 

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