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 1702.

    It is impossible to contemplate us moving to a surplus budget, ever. It simply cannot happen.

  • rate this
    +2

    Comment number 1701.

    'never in the history of this country, has so many been scre*ed over by so few'
    all the politicians of this country should be taken to task at the next GE personally there is not one of them i would give my vote to, we need a sea change in this country no more career politicians who dont have a clue

  • rate this
    +5

    Comment number 1700.

    1693.
    Adam

    In one exceptional case I'd heard of a family where the children hadn't eaten for 3 days. But I doubt that family was living in abject poverty by the definition I've used
    ___

    It's nice when you can choose the definition i suppose.

    That said, it's nice to see someone who is part of an organisation offering help, thumbs up for that.

  • rate this
    +1

    Comment number 1699.

    A few millions from benefits or a few billion from large tax dodgers? Hmm, must make those tough decisions...

  • rate this
    +2

    Comment number 1698.

    Get the Conservative's OUT!! I disagree with scroungers but there has to be measures put in place for those who genuinely need help!

    We cant sub the lazy however the focus should be on where benefits are being spent implementing coupons instead of cash that can only be spent on food, clothing etc.

    Benefits should be judged on the individual on there tax paid like MAT leave!

  • rate this
    +3

    Comment number 1697.

    1683. Billythefirst

    Interesting observation. It's much easier for the Govt to pick a fight with those who cannot afford to fight.

    You only have to look at Phillip Green (Govt spending special advisor 2010, appointed by DC) then discredited as a tax dodging scoundrel who costs the UK 1000's of nurses, school teachers etc.

    Trouble is who can we vote for given that the choices are so poor?

  • rate this
    0

    Comment number 1696.

    1679. fredbmw
    No the low paid are not getting a 1 % rise, the people on benefits are.
    The low paid are NOT guaranteed a rise at all.

    1689 Kitty
    So what is the solution then if people will buy the cheaper option instead of the more expensive British. It is a a world economy where price is key. Corporate tax breaks will help employment and investment in the long ter.

  • rate this
    +4

    Comment number 1695.

    5 years of austerity eh! GREAT - when I was a kid my mum and dad both worked full time, we never had a car, TV, Fridge, holidays or phone. We walked everywhere and never eat a takeaway or in a restaurant; once a week when the ice-cream man came round we got a threepenny cornet. When I asked my mum for pocket money she took me to the newsagents and got me a paper-round - austerity was permanent.

  • rate this
    +3

    Comment number 1694.

    When a country is run by people who represent profit, rather than a social concience what chance do we have?

    Removing workers rights and making the minimum wage the norm is the Tory's mantra.

    Germany has a strong manufacturing base and strong unions, don't let the right wing tell you they are mutually exclusive.

    We need manufacturing in the deprived areas that made GREAT BRITAIN!

  • rate this
    +3

    Comment number 1693.

    1659. Al Gore

    And my Church runs outreach projects on deprived estates in the West Midlands, so I know what poverty in the UK looks like. In one exceptional case I'd heard of a family where the children hadn't eaten for 3 days. But I doubt that family was living in abject poverty by the definition I've used. Got to go now, but it's been a pleasure debating this important issue with you.

  • rate this
    +3

    Comment number 1692.

    Do they want to improve the jobs market, remove the top up benefit and force employers to pay decent living wages and stop boosting their profits with tax payers money. One further thing does anyone know why the far right think tank The Tax payers Alliance is given airtime on the BBC?.

  • rate this
    +3

    Comment number 1691.

    Osbourne is out of his depth he has nothing to offer but cuts.

    If Cameron had any backbone the next cut to be made would be Osborne.

  • rate this
    +6

    Comment number 1690.

    Paxman said it all tonight. To paraphrase, 'Everyone's saying, "How will it affect me...,"' and on Sky some bloke is bleating about the exrtra people in the 40% tax band.

    Please tell me. Who in this sad country wants a happy, stable and prosperous life for all our people, and not just certain layers of society?

  • rate this
    +2

    Comment number 1689.

    1680.Illy

    That is the problem though, people don't have enough money to spend on the more expensive stuff.. so they go for cheaper options. This is because they are paid low wages that MUST be propped up by benefits.

    All the budget is doing is penalising those workers on the edge. Giving tax breaks to the rich isn't helping these low paid workers as it goes to their pockets not investment.

  • rate this
    +4

    Comment number 1688.

    1673 - Walking 20 miles for food fits the definition of abject poverty but more to the point highlights that these are NOT people who can't be bothered to "get off their lazy backsides" as the rabid right try to portray the poor. Many of those going to food banks are working!

    It is utterly, utterly shameful that *anyone* faces starvation in a rich, developed country like the UK.

  • rate this
    0

    Comment number 1687.

    So to sum up, money is being siphoned from the poor and vulnerable so that motorists can fill up their tanks with fuel.

    Ed Balls should be proud.

  • rate this
    +1

    Comment number 1686.

    the question is when will our government admit this is not a recession but a depression. I see nothing to stimulate growth.
    As others have stated this country is becoming more divided and continued focus on the southeast our political, financial and now possibly tech hub is in one area of the country. The tech hub should of been somewhere else bringing stimulus to another region. Were screwed

  • rate this
    +1

    Comment number 1685.

    Osborne was born with a silver spoon in his mouth and his only political strategy is populism. Owing to his hugely privilged position, it never occurs to him that thousands of people in Britain have lost their pensions and their jobs - because of mortgage scams, the closure of companies that have pillaged pension funds, globalised markets that prefer cheap overseas labour, and the IT revolution.

  • rate this
    +1

    Comment number 1684.

    Although the austerity programme never looked likely to succeed, it was interesting to see 30 months ago whether the Government's optimism with regard to it would be borne out. At this stage it is difficult to escape the conclusion that it has been an abysmal failure. Given this, it would not be surprising to see the austerity programme extended beyond its current deadline.

  • rate this
    +6

    Comment number 1683.

    Nothing like a graph to put things into perspective:

    Benefit fraud v tax avoidance :

    http://www.taxresearch.org.uk/Blog/2012/11/22/average-cost-of-local-authority-benefit-fraud-per-case-2166-average-cost-of-tax-avoidance-per-case-248780/

    Now, where should one direct one's limited resources.....tricky one this

 

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