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
    +8

    Comment number 1162.

    @1144
    Couldn't agree more. They are using it as a smokescreen to take the welfare state apart, and have until 2015 to do it. They know they won't win the next GE so will implement benefit cuts etc. while they can, at the same time as looking after the party donors, aided by the LibDems.

  • rate this
    +9

    Comment number 1161.

    Ok so the Government is cutting in real terms the support paid to the unemployed and low paid while at the same time offering yet another tax cut to the corporations that pay wages that don't meet the cost of living, while expecting the tax payer to subsidise their profits, which they then hide. Is it any wonder that the Government spending plans are out of control with logic like that?

  • rate this
    +5

    Comment number 1160.

    It just goes to show...

    Going to a posh school doesn't necessarily make you clever.

    What a fool George Osbourne is.

  • rate this
    -2

    Comment number 1159.

    "The Conservatives would have cut more from the benefit budgets, but the Lib Dems wouldn't let them" (quote - BBC)

    Thank goodness for the Lib Dems, I say. Cuts are absolutely needed to balance the budget, but the Conservatives would cut far too far if not restrained. We need a new chancellor (Vince Cable, to be exact).

  • rate this
    +6

    Comment number 1158.

    The vunerable have been hit the hardest. Many working families have to claim benefits because their wages are too low to survive on.Their children will be improvished & stigmatised; their schooling will suffer & they are more likely to leave school with fewer prospects than their better off peers. I bet some families live on less than some MPs claim in expenses in a year.

  • rate this
    +3

    Comment number 1157.

    1095.bungle99
    I here a lot of peeps moaning about tax dodging. Well get real when your parents are about to go into the old peoples home and the local authority wants to come along and take your inheritance away
    ***
    Yep and all those keeping their savings in cash in the house or held by someone else so they can keep their benefits.
    Principals the same

  • rate this
    +8

    Comment number 1156.

    ConDemLab politics designed specifically for the few to flourish whilst the masses prop up the whole creaking system that the privileged have no real need of.
    Why else hide yourself behind think tanks , statisticians and consultants?

    They can't really look us in the eye anymore and always shy from the unmanaged encounter with joe public, I wonder why?

    Please stop voting for them.

  • rate this
    0

    Comment number 1155.

    If they stopped giving any kind of benefit to anyone under 18 the following dramatic decline in births for the scroungers (not the genuine cases of jobs lost or ill etc) would help solve the problem and the money could go to those who actually deserve and need it. Sort the wheat from the chaff. Reduce generations of scroungers who mock the majority of us and cause bitterness and anger.

  • rate this
    +5

    Comment number 1154.

    Some unbelievable comments on here by some who either have their head in the sand (I would have said up .. ) are daft, in denial or "trolls"?

    The Deficit is INCREASING.& going up!

    It is easy to reduce public borrowing when you cancel projects & put people out of work

    Why does Germany, US, France etc all have growth and we dont?

    Germany even had unexpected tax receipts from people WORKING!

  • rate this
    +1

    Comment number 1153.

    1125.countryboy
    Most unemployed would make it last them a life time and still pay tax on there interest returns as most single unemployed have to work out how to make £10.14 pence a day pay there bills and food

  • rate this
    +2

    Comment number 1152.

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

  • rate this
    -2

    Comment number 1151.

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

  • rate this
    +9

    Comment number 1150.

    £65bn pa for EU membership (no benefits)
    £18bn so far on war in Afghanstan (no benefits)
    Stop spending our hard earned money on expensive things that we don't need. Then we might have the money to pay more benefits to people whose lives don't represent pawns in your idiotic games.Then see the re-circulation of money run through this country.Oh, and sack the bankers!

  • rate this
    +5

    Comment number 1149.

    3p increase in fuel duty abolished, something that should never have been considered initially. Up to 13,000 sacked to fund road improvements and schools, what happened to the taxes taken to fund these?
    Soon the next time bomb will come, interest only mortgages stopped, over 2 million with them and nearly 50% with no means of paying back. When the interest rate increases it will be a big issue.

  • rate this
    +26

    Comment number 1148.

    Have worked since leaving school at 14 - now 59. Given £111 pw plus housing of £87 pw. Rent is £150 pw. How can I afford to stay warm and feed my wife and I. Have been to countless interviews but when they see my age, the eyes go blank. Now I'm made to feel like a criminal and a no good just because I can't get a job. We aren't all skiving druggies, some of us have 45 years of work behind us.

  • rate this
    -21

    Comment number 1147.

    The BBC have I see, now completely abandoned any attempt at impariality, the coalition have done brilliantly on handling the deficit, with much better news on that front from the chancellor than expected

    But yet again the BBC response reads word for word like labours response - doom gloom as negative as possible

    pretty shabby

  • rate this
    +6

    Comment number 1146.

    The political will seems to be missing with this coalition ... Too much pandering to the lily livered likes of Clegghead and cable head . We taxpayers are fed up with our money being wasted on overpaid council chiefs, bbc feather bedding themselves and heads of so called charities .. To name afew. Cull these salaries and help the lower paid who are bearing unfair burden ... Simples?

  • rate this
    +8

    Comment number 1145.

    We must all work within the same tax area. I know this will be removed soon , but this afdternoon I called the police for my Iranian Upstairs neighbour who gets sickness benefit due to his slipped disc as a body builder back in Iran. His girlfriend was screaming and can't speak English.

  • rate this
    +16

    Comment number 1144.

    Can the BBC show us two figures ?

    1. The amount of money the banks, the tax evading corporations and dodgy millionaires cost us.

    2. The amount of money those illegally taking benefits cost us.

    I'm willing to bet that the worst parasites are not the ones who the tories villify but the ones they support

    One hope for us is Wikileaks decides to turn their attention to our 'establishment'.

  • rate this
    +23

    Comment number 1143.

    All three main parties should stand together for the good of the country and agree that the country can not be run on an endless credit card.

    Again all three parties should agree that the deficit needs to be reduced and agree to a time table. This would give the markets the confidence to lend to our country and keep borrowing costs low.

 

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