Budget: New northern road and train links greenlit - but Osborne's fiscal plans derailed

George George Osborne has unveiled a new sugary drinks tax but stopped short of raising fuel duty as he blamed the 'dangerous' global economic situation for derailing his fiscal plans.

Chancellor George Osborne delivers his Budget statement to the House of Commons

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Delivering one of his most difficult Budgets yet, the Chancellor was forced to admit that government debt will rise as a proportion of GDP this year - breaking a key rule he had set himself - and growth forecasts have been sharply revised down.

Chancellor George Osborne delivers his Budget statement to the House of Commons

But he insisted the UK was “well placed” to handle the worldwide slowdown and the deficit would still be wiped out by 2019-20 - thanks in part to another £3.5 billion of spending cuts.

The embarrassing debt admission - which followed the breach of his welfare spending cap - came in a speech to MPs that included a number of surprise measures as well as a host of grim economic data.

Mounting an impassioned defence of his austerity programme, Mr Osborne argued it had saved the country hundreds of millions of pounds and prevented the next generation being “burdened”.

He insisted the policies meant he was able to give tax cuts for millions of hard-working families - with the personal allowance rising to £11,500 next year and the higher 40p rate going up to £45,000.

Chancellor George Osborne delivers his Budget statement to the House of Commons

Fuel duty will be frozen for the sixth year in a row after he defied expectations of an inflation-linked rise and beer duty has also been put on hold, while corporation tax will fall to 17% by 2020 and there will be tax incentives for smaller businesses.

However, a 0.5% increase to insurance premium tax will generate £700 million to boost flood defences, and in the wake of the Google tax bill row, there will be a fresh £12 billion crackdown on tax dodging by firms and individuals.

The most eye-catching news was the introduction of a sugar tax by 2018, which will see companies charged based on the level of sugar in their products. The £520 million due to be raised will be used to help support school sport, he said.

In comments likely to enrage Tory Eurosceptics, Mr Osborne used the platform of his parliamentary set-piece to warn that leaving the EU was one of the biggest risks to the UK’s future. He also dragged the Office for Budget Responsibility (OBR) into the row, quoting the independent watchdog as agreeing that Brexit would lead to “disruptive uncertainty”.

Budget changes at a glance

“Our response to this new challenge is clear. We act now so we don’t pay later,” Mr Osborne said. “This is our Budget. One that reaches a surplus so the next generation doesn’t have to pay our debts.

“One that reforms our tax system so that the next generation inherits a strong economy. One that takes the imaginative steps so that the next generation is better educated.

“One that takes bold decisions so that our children grow up fit and healthy. This is a Budget that gets investors investing, savers saving, businesses doing business; so that we build for working people a low tax, enterprise Britain; secure at home, strong in the world.”

But Labour leader Jeremy Corbyn described Mr Osborne’s Budget as the culmination of “six years of his failures” and said it had “unfairness at its very core”.

Budget changes at a glance

The Labour leader said the financial proposals fail on productivity, investment and in tackling inequality.

Mr Corbyn added that the Chancellor is offering tax cuts to the very wealthy while disabled people lose more than £1 billion.

Mr Osborne, who said ministers would now start looking at how to find additional departmental savings, said: “Britain is not immune to slowdowns and shocks. Nor as a nation are we powerless.

“We have a choice. We can choose to add to the risk and uncertainty, or we can be a force for stability.

“In this Budget we choose to put stability first. Britain can choose, as others are, short-term fixes and more stimulus. Or we can lead the world with long-term solutions to long-term problems.

“In this Budget we choose the long term. We choose to put the next generation first. Sound public finances to deliver security, lower taxes on business and enterprise to create jobs, reform to improve schools, investment to build homes and infrastructure - because we know that’s the only way to deliver real opportunity and social mobility.

Chancellor George Osborne delivers his Budget statement to the House of Commons

“And we know that the best way we can help working people is to help them to save and let them keep more of the money they earn.”

In a sign of the scale of the turnaround, the OBR has revised down its UK growth estimates for this year from 2.4% to 2%, while next year it is expected to be 2.2% instead of 2.4%.

Inflation was also revised down to 0.7% this year and 1.6% next year.

Confirmation that the fiscal rule had been broken came as Mr Osborne revealed that debt was now expected to be 82.6% of GDP in 2016/17 rather than 81.7%. The OBR also pushed up its forecast for 2017/18, from 79.9% to 81.3%, and for 2019-20 from 77.3% to 79.9%. By 2020-21 it will be 3.4% higher than previously expected at 74.7%.

The deficit - the amount the Government spends above what it takes in - is forecast to fall next year to 2.9%, rather than the 2.5% anticipated before.

Despite the turbulence, Mr Osborne said the Government still expected to record a slightly larger overall surplus by 2019-20 than previously predicted, at £10.4 billion.

He denied that the poorest and most vulnerable were bearing an unfair share of the burden, saying the richest 1% were contributing 28% of tax revenue.

“The independent statistics confirm that, under this Prime Minister, child poverty is down, pensioner poverty is down, inequality is down, and the gender pay gap has never been smaller,” he said.

The tax-dodging crackdown includes action to tackle overseas retailers who who store goods in Britain and sell them online without paying VAT.

The threshold for small business rate relief is being permanently raised from £6,000 to a maximum of £15,000, and the higher rate from £18,000 to £51,000.

Mr Osborne said this would mean that, from April next year, 600,000 small businesses will pay no business rates at all, at an annual saving for them of up to nearly £6,000. A further quarter of a million businesses will see their rates cut.

A series of major infrastructure projects were outlined, including the HS3 train project and Crossrail 2, while tolls on the Severn Crossings between England and Wales are to be halved by 2018.

He also confirmed the widely trailed announcement that all schools will be expected to be on track to become academies by 2022.

After record employment figures released this morning, the OBR is forecasting one million more jobs over the course of this Parliament.

The higher rate of Capital Gains Tax is being cut from 28% to 20%, and the basic rate from 18% to 10%.

Mr Osborne also said he was giving a £130 tax cut to three million self-employed by abolishing Class 2 National Insurance contributions from 2018.

The sugar tax announcement followed months of wrangling between ministers, with the idea thought to have been ruled out at one stage before David Cameron disclosed it was still on the table.

A number of Tory MPs have signalled they regard the move as “nanny state”, but Mr Osborne will be hoping he has placated some critics by imposing the levy on companies rather than directly raising prices.

TV chef Jamie Oliver, who has been campaigning for a levy on sugary products, tweeted: “We did it guys !! We did it !!!”

Figures in the Budget ‘Red Book’ suggest the spending commitments are ‘front loaded’, with policy changes initially costing the Government money before large revenue-raisers come on stream and wipe out the deficit.

The documents list a reduction in the ‘discount rate’ used to calculate the public sector pension scheme as a major saving for the Treasury coffers, saving around £2 billion a year by 2019-20.

However, the Liberal Democrats branded it a cut “by the back door” as departments will have to increase their contributions to unfunded pension schemes - such as those operated for the Army, NHS staff, and teachers.

And Dave Penman, general secretary of the FDA, which represents senior civil servants, said: “By announcing a change to the discount rate on public sector pensions - without any consultation - they are effectively removing a further £2 billion from public services and transferring it to the Treasury to give the illusion of a surplus: a political con trick that can only further damage public services.”

Chancellor George Osborne delivers his Budget statement to the House of Commons
Budget changes at a glance
Budget changes at a glance