GEORGE Osborne today announced a benefits squeeze and a raid on the pensions of the wealthy as the economy continues to falter.
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In a bleak Autumn Statement, the Chancellor said that weakening economic growth meant the era austerity would be extended for another year to 2018, well into the next parliament.
He sought to sweeten the pill, scrapping a planned 3p-a-litre rise in fuel duty which had been due to come in January.
However, he was also forced to admit that the independent Office for Budget Responsibility now believed he would miss his target for debt to start falling as a proportion of GDP from 2015/16 - the year of the next general election.
Labour seized on the forecast, claiming it revealed the “true scale of this Government’s economic failure”.
Shadow chancellor Ed Balls claimed the UK was “falling behind in the global race” as a result of Mr Osborne’s management of the economy.
Mr Osborne told MPs: “It’s taking time, but the British economy is healing.”
He acknowledged that previous growth predictions were wrong, but he pledged to continue efforts to drive down the deficit.
Quoting the latest Office for Budget Responsibility growth forecast, Mr Osborne said the economy was now expected to shrink by 0.1% this year compared with a previous prediction of 0.8% growth.
Setting out spending plans for 2015-16 and a framework into 2017-18, he said deficit reduction measures would be achieved fairly with further savings from bureaucracy, from benefit bills and the better-off.
He hailed a reduction in borrowing, saying it was forecast to fall from £108 billion this year to £99 billion next year, £88 billion the year after, then £73 billion in 2015-16 and £49 billion and £31 billion in the two years after that.
He admitted he was going to miss his target that debt should start falling as a proportion of GDP by 2015/16 - the year of the next General Election. Instead he said it would take another year.
He said the OBR’s central forecast is that net debt will be 74.7% this year, then 76.8% next year, 79% in 2014-15 and 79.9% in 2015-16. It will then fall to 79.2% in 2016-17 and 77.3% in 2017-18.
He told MPs: “Yes, the deficit is still far too high for comfort. We cannot relax our efforts to make our economy safe.
“But Britain is heading in the right direction. The road is hard but we’re making progress.”
He again ruled out a mansion tax but confirmed plans to cut tax allowances for big pension pots.
He said that from 2014-15, the lifetime allowance would be cut from £1.5 million to £1.25 million and the annual allowance from £50,000 to £40,000, saving £1 billion a year by 2016-17.
He told MPs: “I know these tax measures will not be welcomed by all; ways to reduce the deficit never are. But we must show we’re all in this together. When you’re looking for savings, I think it’s fair to look at the tax relief we give to the top 2%.”
The Chancellor said most working age benefit increases would be pegged at 1% for the next three years - a real terms cut.
The higher rate income tax threshold would also be increased by just 1% in 2014-15 and 2015-16, so the income at which people start paying the 40% rate will go up from £41,450 to £41,865 and then to £42,285.
Mr Osborne told MPs: “I want to be completely clear with people. This is an increase; in fact, it is the first cash increase in the higher rate threshold in this Parliament.
“But it is not an increase in line with inflation, and so it raises one billion pounds of revenue by 2015-16.”
He also announced another cut in corporation tax rate by a further 1% to 21%, compared with 40% in the US, 33% in France and 29% in Germany.
He said: “This is the lowest rate of any major western economy. It is an advert for our country that says: come here; invest here; create jobs here; Britain is open for business.”
He confirmed that the planned increase in fuel duty would be suspended, saying: “It means that under this Government we’ll have had no increase in petrol taxes for nearly two and a half years.”
And he announced more help for working people with an increase in the amount they can earn before paying any income tax from next April - currently due to be £9,205 - by a further £235.
Mr Osborne faced a string of questions from Labour MPs about the decision to include the windfall from the 4G mobile spectrum auction in the public finance figures, resulting in a fall in borrowing, despite the sale not actually having taken place.
Former minister Ian Austin said: “When you look at the small print, you see that the only reason that borrowing has fallen this year is because the Government has added in the proceeds of the 4G mobile spectrum auction into this year’s figures, even though Government delays mean the auction has not yet actually taken place.
“If those figures weren’t added in this year, if he didn’t have that £3.5 billion pencilled in for the receipt from that, borrowing would actually be £2 billion higher this year than it was (in) the last.”
Mr Osborne told him: “The deficit and borrowing is falling any way you present the public figures and we have done that in a completely transparent way.”
Pressed on the issue he added: “We have taken the decision, for example, to use the spectrum money to help with further education and to fund the annual investment allowance which starts in January next year, in this financial year.”
Aides to the Chancellor stressed the decision to include the 4G money in the figures was taken by the OBR.
Budget at a glance
• Growth forecast for 2012 downgraded by Office for Budget Responsibility (OBR) to minus 0.1%.
• GDP growth has been downgraded for every year of the forecast period to 1.2% in 2013, 2% in 2014, 2.3% in 2015, 2.7% in 2016, and 2.8% in 2017.
• Unemployment predicted by OBR to peak at 8.3%, with employment rising every year.
• The deficit is forecast to fall from 7.9% last year to 6.9% this year, then 6.1%, 5.2%, 4.2%, and 2.6%, reaching 1.6% in 2017/18.
• Borrowing is forecast to fall from £108 billion this year, to £99 billion, £88 billion, £73 billion and £49 billion in later years, reaching £31 billion in 2017/18.
• Target of debt falling by 2015/16 is to be missed - this will now happen in 2016/17. The period of austerity has been extended by one year to 2017/18.
• Civil service budgets to be cut by 1% next year and 2% in 2014, with NHS and schools exempted. Local government budgets to be cut by 2% in 2014.
• Capital investment in infrastructure is to total £5 billion over two years, including £1 billion for roads, upgrading the A1, A30, and M25.
• The High Speed 2 rail link is to be extended to the North West and to West Yorkshire. In London, the Northern Line of the Underground is to be extended to Battersea.
• £600 million to be invested in science, £270 million in further education colleges, and £1 billion in schools.
• Additional spending of £77 million for HM Revenue and Customs to fight tax avoidance expected to increase money collected by £2 billion a year.
• There will be no new tax on property.
• The overall Isa contribution limit is to be uprated to £11,520 from next April.
• Capital gains tax annual exempt amount is to increase by 1% over the same period, reaching £11,100 and inheritance tax nil-band rate to rise from £325,000 now to £329,000 in 2015/16.
• There will be consultation on tax incentives for shale gas.
• The main rate of corporation tax is to be cut by 1% to 21% in April 2014.
• The bank levy rate will be increased to 0.13% next year.
• Income tax personal allowance is to increase by £1,335 - £235 more than previously announced - so no tax will be paid on earnings under £9,440.
• The threshold for 40% rate of income tax is to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.
• Most working age benefits - including Jobseeker’s Allowance, Employment and Support Allowance and Income Support - to be uprated by 1% for the next three years.
• Child benefit is to rise by 1% for two years from April 2014.
• The basic state pension is to rise by 2.5% next year to £110.15 a week.
• The tax-free allowance for pensions is to be cut from 2014/15 from £1.5 million to £1.25 million over a lifetime. Annual allowance is to be cut from £50,000 to £40,000, saving £1 billion.
• The planned 3p-per-litre planned rise in fuel duty has been cancelled.
The Chancellor sat down at 1.21pm.