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
    -2

    Comment number 1202.

    1121 RaiseTheGame
    He has lowered the corporation tax which is a good thing......Most on here will not understand the positive effect this would have.

    Your final point perfectly illustrated by the negative rating of your post :)

    Low Corp Tax attracts business, creates jobs & increases tax paid to the gov. It also makes companies less likely to try and avoid it, thus increasing overall tax take.

  • rate this
    0

    Comment number 1201.

    Galbraith said the far right’s policies were founded on the curious assumption that the rich were not working properly because they had too little money, the poor because they had too much. Trickle-down economics was like advocating feeding the horse more oats because some would pass through to the road for the sparrows. Don’t cut welfare, make the rich pay the £120 billion PA tax they owe.

  • rate this
    -6

    Comment number 1200.

    1141.
    sailor
    24 Minutes ago

    mr osbourne is once again going to squeeze everyone else again but he never thinks of squeezing the MPs of their expenses.

    You pay peanuts you get monkeys. We need to pay the people who run this country a bit more to get a better quality MP, why do you think we get so many idiots......think about it!!

  • rate this
    +1

    Comment number 1199.

    Count your lucky stars - you could be living in France, Spain, Italy or Greece. Countries with no economic future for perhaps a generation. The U.K. can at least look to grow in the BRIC markets with a free and flexible economy. Boris Johnson got it absolutely right - we need him in France. Never thought I would agree with a politco so much.

  • rate this
    -1

    Comment number 1198.

    Nothing will get better, as long as governments, money and computers remains!!!

  • rate this
    +6

    Comment number 1197.

    I am fed up the bias put on news reports regarding how pensioners' are unaffected. Your reports always seem to interview the better-off, presumably with good private pensions. We, too have to find extra for food, heating and increased costs of living. Many pensioners do not have anything other than the basic pension and have paid tax, n.i. all our lives for what, by any standard, is a pittance.

  • rate this
    +4

    Comment number 1196.

    151.
    voice-of-rationality


    Rationality I don't think so. Can you not understand that the people marking you and others down a people who don't agree with you. It's not someone in the BBC doing it it's us the punters. Or is that not rational enough for you. I've marked you down and I don't work for the BBC to show you how it works











    .

  • rate this
    +8

    Comment number 1195.

    @1141. sailor
    "mps get houses and outher benefits at our expense, This should be cut immediately and that would save millions"

    Even though I agree with you, its not the main issue. The main issue is that there is far to many of them.

    Its ridiculous that this nation of 62 million people, has more politicians than both the USA (pop 314m) & China (pop 1.3bn).

  • rate this
    -1

    Comment number 1194.

    Uk growth is only being held back by the weight of the Eurozone depression dragging it down. Osborne can do nothing about that.
    Balls knows he would be in exactly the same position. Except it was his party that spent all our taxes and left Obsorne with nothing left.

  • rate this
    +5

    Comment number 1193.

    Public service staffing cuts have happened faster than expected but expenditure has increased - something very wrong there somewhere.. Benefits (supposedly for the worse off) are cut again but big companies, the rich and even high end public service employees are still able to legally avoid their tax burden, the gap between rich and poor continues to widen - yes we are all truly in it together!?!

  • rate this
    +2

    Comment number 1192.

    It really is about time that our rulers realised that these professional politicians (of all parties) don't have the competence to manage the finances of the nation. Especially in an environment which is dominated by global big busines that simply plays one country off against another.
    TIme to get some people in parliamen who know what they're doing.

  • rate this
    +7

    Comment number 1191.

    NOT a cut in fuel duty. A decision not to increase. And we are supposed to be grateful?

    Wake up, Britain. In real terms, they're cutting the supply of money to the people they expect to get us out of this mess, whilst letting the big corporations off the hook. It's just not going to work, is it?

  • rate this
    +3

    Comment number 1190.

    "1170.swerdna
    Debt is bad news... Crunch time always happens.
    The UK has lived beyond its means on Debt without investment for decades."

    But if we prevented tax avoision we would be well on the way to being comfortably off. It doesn't have to be all cuts. When a business is faced with debt it can cut or it can chase unpaid bills. The later is far better for it's long term health.

  • rate this
    -3

    Comment number 1189.

    @1168; I dont like the tories but i understand them,its this new bread of so called socialists that i struggle with,i can understand them giving themselves cushy jobs in the NHS and social services etc on obscene salarys,greed and corruption is part of human nature but i can't understand their hatred of working class english people,the very people their party was created to represent

  • rate this
    +2

    Comment number 1188.

    A small lesson in economics for our politicians. Stop spending money we can't afford! If cuts are required, we can take them if we must. However, borrowing money, to then send to other countries (EU and foreign aid) is utter foolishness.

    We need leaders in charge, not clueless career politicians!!! Ex services, business leaders etc. people with real world experience.

  • rate this
    +1

    Comment number 1187.

    We are paying the price fir Osbourne's promises made when they took office. It has painted the country into an economic corner. He knows that he needs to reduce (please note I am not saying eliminate) the cuts and invest in infrastructure. The net effect is to stimulate the economy and raise more in taxes. But he can't make this change without admitting he was wrong. So the country suffers!!

  • rate this
    0

    Comment number 1186.

    If we did not send millions to other countrys we could pay off our debt and arm radicals. the crime rate would go down if you looked after our own first get out EU trade with the rest of the world think befor you vote this year petral should be lower to help transport business and public transport fairs are to high.

  • rate this
    +5

    Comment number 1185.

    Mp's should be paid at JSA rates with housing benefit then see how many of them find they can not manage on it

  • rate this
    +4

    Comment number 1184.

    1148.chunga
    Have worked since leaving school at 14 - now 59. We aren't all skiving druggies, some of us have 45 years of work behind us.
    ***
    That should count for a lot.. you've earned it, compared to the live for free life styles of the deliberate single parent brigade costing 3 times more than the Royal Navy, plus the new babies for benefit boomers.

  • rate this
    +6

    Comment number 1183.

    Those on benefits - the poor who played no part in our economic problems - are worse off, while the big corporations - which are part of the problem - get a tax cut. The Tories pretend they are encouraging the poor back into work; but there is no work, just a queue two and a half million long - of use only to depress already low wages.
    The smirking bullies on the Govt front bench don't care.

 

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