GEORGE Osborne was yesterday forced to admit that Britain’s age of austerity will extend well beyond the next general election, as he unveiled a series of measures the coalition hopes will at least restore growth to the economy before voters go to the polls in the next UK election.
• Extra £6.6bn cuts to welfare, overseas aid and Department spending to fund £5.5bn of infrastructure investment
• Increase in personal allowance of £235 from April 2013, taking it to £9440
• Cancelling 3p increase in fuel duty from New Year
• Reduction in lifetime allowance for pension contributions from £1.5m to £1.25m
• Cut in the annual allowance from £50,000 to £40,000
• Working age benefits and tax credits to be limited to 1% increase for next three years - excluding disability and carers allowance
• Higher rate of income tax to be increase by just 1%, rather than inflation in next two years, bringing more people into that band
• 1% cut in the main rate of Corporation tax from April 2014 to 21%
• Temporary increase in additional investment allowance, from £25,000 to £250,000 for two years
Boldly declaring “it is taking time but the British economy is healing”, the Chancellor used his Autumn Statement to push back the timetable for bringing down the country’s £1 trillion debt mountain, announcing a series of punitive clawbacks from the Treasury to spread the pain of the consequences of the increasing deficit across the country.
In an effort to sweeten the austerity pill, the Conservative Chancellor, who was flanked by his Liberal Democrat deputy, Danny Alexander, as he made his Commons statement, axed a planned fuel duty rise and boosted the personal allowance of income tax payers.
However, these more populist measures failed to hide the cuts Mr Osborne also introduced. People out of work on benefits will receive below-inflation increases of just 1 per cent from next year, prompting claims from anti-poverty campaigners that he was “snipping away” at the welfare safety net.
But Mr Osborne also risked infuriating middle-income households, by giving notice to those earning about £40,000 that they will soon find some of their income taxed at the 40 per cent higher rate.
Meanwhile, Treasury documents showed Mr Osborne would return to his desk this morning with the task of finding a further £10 billion worth of savings for the 2015 budget, which kicks in just before the next general election.
With Lib Dem sources claiming they had won concessions from the Chancellor that he would not raid the welfare budget again, Whitehall departments appeared once again to be in the Treasury’s cross-fire in the search for savings.
The hunt for further austerity measures came as the independent Office for Budget Responsibility (OBR) yesterday published its latest economic forecast, saying it was “more pessimistic” about the medium-term recovery than it had been in March, and warning that the outlook for the world economy and UK exports had “deteriorated”.
The gloomy projection will further depress tax receipts, meaning the OBR now expects Britain’s debt burden to grow to nearly 80 per cent of GDP by 2016.
It forced Mr Osborne to tell the Commons yesterday that he would miss one of his key targets on arriving in 11 Downing Street: to have debt falling between 2014 and 2016.
With Britain’s debts growing for longer, there was also speculation yesterday that the Chancellor may suffer the humiliation of seeing Britain’s coveted triple-A credit rating downgraded as early as the new year.
But Mr Osborne told MPs yesterday that while the country faced “a hard road,” it was nevertheless “getting there”.
He added: “Britain is on the right track, and turning back now would be a disaster.”
However, he continued, there was still much more to do to balance the books against a backdrop of grim economic data.
He was also able to confound expectations by announcing the deficit this year would fall – although it emerged later this was due in part to the £3.5bn the Treasury cashed in from the 4G auction earlier this year.
In the key part of his statement to MPs, he announced a £6.5bn package of savings in welfare and departmental spend. The savings in welfare will come from the below-
inflation benefits increase from next year, which will affect all claimants apart from those on disability and carer’s allowance.
He also announced that from 2014, the higher-rate threshold for income tax will increase by a below inflation 1 per cent, throwing anyone earning £41,865 into the more costly rate, a total of 400,000 taxpayers.
Tensions were evident within the coalition as Deputy Prime Minister Nick Clegg shook his head when Mr Osborne announced no new “mansion tax”.
But the Lib Dems then claimed victory as Mr Osborne announced a further increase in the personal allowance, which now rises to £9,440.
Then, to cheers from Tory benches, Mr Osborne also announced that the 3p increase in fuel duty would be scrapped.
Replying, shadow chancellor Ed Balls declared: “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.”
Julia Unwin, chief executive of anti-poverty think tank the Joseph Rowntree Foundation, said: “Snipping at the safety net and reducing the value of benefits at the same time will increase poverty and hardship for the most vulnerable. We’re at risk of consigning the poorest to a decade of destitution.”
But there was a welcome from business for Mr Osborne’s announcement of a 1 per cent cut in corporation tax and other plans to boost capital spending.
CBI director general John Cridland said: “Investors will be buoyed by the new model to channel private finance into UK infrastructure, ending months of uncertainty. Now we must use this momentum to get Britain building.”
Mr Osborne also unveiled a fresh bid to crack down on tax avoidance. Jon Meeten, head of tax for KPMG in Scotland, said: “He unveiled some big ‘carrots’ today, with a surprise cut in the corporate tax rate. There’s a big ‘stick’ being wielded on those who don’t play by the rules.”