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
    +1

    Comment number 1182.

    1154. sprout_2001

    UK economic growth 3rd quarter 1.00 %
    French economic growth 0.20%
    American economic growth 0.50 %
    German economic growth 0.20 %

    We are bumping along the bottom hopefully but are not doing as bad as some countries. We cant spend what we have not got and the sooner people accept that the better.

  • rate this
    -2

    Comment number 1181.

    @1152 toxic gel

    Osbourne and Cameron two good reasons not to send my grandson to Eton.

    As you obviously have enough money to be thinking of sending him to a public school in the first place theres quite a choice most of us wouldn't even be interested in or is it just the politics of envy speaking?

  • rate this
    +1

    Comment number 1180.

    Osbourne and co have failed, Gordon Brown was totally correct on the economy, vote tory and you get a double dip recession. A complete economic failure from this government.
    We need to tax the bankers to generate revenue and to cut VAT to boost consumer spending and to stop retail businesses failing in our declining high streets.

  • rate this
    +7

    Comment number 1179.

    Did I hear somewhere that mp`s pensions are not affected by all this mess !!! that sums it up it a nutshell ; lets all sing together

    " There`s a good time coming but it seems so far away "

    Only two years more if they last that long ?

    aaaaaaagggggggghhhhhhhhhhhh angry of Mayfair !!

  • rate this
    0

    Comment number 1178.

    "I'm going off the rails on a crazy train"
    Mr. Osbourne

    Take back David Beckham
    More Spice Girls if you please

  • rate this
    +1

    Comment number 1177.

    1151. voice-of-rationality

    '1116 MacK I completely agree about the left-wing bias of BBC coverage & I even tried to vote positively for your comment. Oddly it won't rate positively... Funny that...

    Wow I bet you are the sort that believe in conspiracy theory's too. I just voted positive for 1116 and it worked. Funny that...

  • rate this
    -1

    Comment number 1176.

    Some of the comments on here show just why the great British public have very few chances to vote on anything and virtually never in referenda.

    The public are given poor & biased information from all quarters (politicians and media), then never bother to look into it themselves or to look past their predjudices and are generally just too stupid to be allowed to vote on anything that matters.

  • rate this
    0

    Comment number 1175.

    1153 you mean "their" (which denotes ownership) rather than "there" which denotes direction. You make the same mistake twice.

  • rate this
    -7

    Comment number 1174.

    Dear BBC please give a balanced view. Private sector employment up and 600,000 more than expected. This is great and the most important stat of all. The chancellor is supporting business with corp tax down. The deficit has fallen by a quarter.
    Less than inflation rises for those who a Labour government told after the WWs 'you work or you want' - quite right.

  • rate this
    +5

    Comment number 1173.

    Why doesn't Osbourne get it over and done with and just introduce a pleb tax. Tax plebs a special one off tax and give it to the rich and the elderly

  • rate this
    -1

    Comment number 1172.

    All the money is gone - remember the note?
    Osbourne doesn't WANT to make cuts he has to.

    Remember the bankers like Fred the Shred? Blame RBS for the mess. Brown gave him a knighthood!

    I would vote for a Donkey with a red rosette before I'd vote Labour and let Balls and Brown in again. Where is he?! He's still an MP. He still gets paid 60+K a year but he's never there!! Shameless hypocrite.

  • rate this
    0

    Comment number 1171.

    Whilst the cuts are painful they are necessary. Mr Osbourne gives me confidence that the gov are doing what they can. Now is not the time to attack them. The world is struggling at present. Too many people. As for Ed Balls and cronies trying for political capital, they are fooling no one with a grain of sense. They are half the reason things are so bad. Labour for the people? Out for themselves.

  • rate this
    +4

    Comment number 1170.

    Economics is dead simple: Don't spend more money than is earned unless the borrowed cash is invested in long term projects guaranteed to pay off. The reason is simple - borrowed cash must be repaid with interest.
    Debt is bad news whether the money is owed by a person, a business or a country. Crunch time always happens.
    The UK has lived beyond its means on Debt without investment for decades.

  • rate this
    0

    Comment number 1169.

    Scotland have 375 million 25% goes in profit to firms and we cannot afford it. how are we going to reduce the deficit with this irresponsible idiot!!!! JC 1132 I agree

  • rate this
    +3

    Comment number 1168.

    There is a philosophy which the Tories subscribe to that a country is better off if the wealth of the country is in the hands of the few and that is wht the top 10% has got richer

  • rate this
    +5

    Comment number 1167.

    I await the end of financial year borrowing figures with interest. Osborne is becoming over confident, with no results for back-up. He should be on PRP.

  • rate this
    +3

    Comment number 1166.

    1131.keithf
    Very true benefits allow a fantastic lifestyle so we simply cut all pay to benefit levels there is still the incentive to go to work to keep warm amd the defecit can be paid off with the balance, or wasn't that what you meant?

  • rate this
    +1

    Comment number 1165.

    1109.selhurstboys
    True - mind you it didnt look that way on Sat. However its not just govs that have to learn but everyone, the screeds of low skill jobs lost are not coming back, & we have to find another economy based on more sensible business models. So far no one appears to have a clue. I'm not suprised I once asked an expert to name a model of how a global economy worked, & there wasnt one.

  • rate this
    +4

    Comment number 1164.

    "1155.Joyanblu
    Sort the wheat from the chaff. Reduce generations of scroungers who mock the majority of us and cause bitterness and anger."

    Said the Austrian Corporal. Or are you saying he was right?

  • rate this
    +7

    Comment number 1163.

    @1140;Immigration is a huge financial burden to working class people,it makes it harder for us to find jobs which creates a bigger burden on the welfare system and then there's housing,schools the NHS,what they pay in tax they more then cost us in everything else.We need a working class revolution,destroy the tories and the labour weirdo's,power to the people!

 

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