Defiant Osborne vows: I’m sticking to Plan A
CHANCELLOR George Osborne will today insist there is no alternative to his “Plan A” for deficit reduction, as he unveils an expected £22.5 billion saving for the government.
But his autumn statement this afternoon has already been overshadowed by a warning from the Organisation for Economic Co-operation and Development (OECD) that Britain is heading towards a double-dip recession.
And some analysts say Mr Osborne’s decision to increase capital spending by £40bn to help stimulate the economy is an admission of defeat over his austerity programme.
In his statement, the Chancellor is set to unveil a series of measures to help boost the economy, including paying half the £100 million costs of upgrading the sleeper train service between London and Scotland.
Westminster sources say the UK government sees the need to improve transport links between London and Scotland as “part of promoting the Union” in the run-up to an independence referendum. It is understood the coalition will challenge the Scottish Government to come up with the other £50m.
Meanwhile, it is expected start-up businesses will benefit from a “Seed Enterprise Scheme” that will cut tax on investments and company income by 50 per cent.
In England, free childcare for youngters up to the age of two will be extended from 20 per cent to 40 per cent of that age group, to help parents get back to work. In addition, small business rates will be frozen again. Scotland will receive “Barnett consequentials” from these schemes, which the Scottish Government can spend on its own projects.
Good news for road and rail users is on the cards, with the proposed 3p-a-litre fuel duty rise expected to be postponed and planned rail fare rises cut back.
Mr Osborne is expected to claim his series of austerity measures – including the tackling of public-sector pensions, which have provoked tomorrow’s strikes – have saved the UK £22.5bn because of the confidence international bond markets have in UK government policy.
While countries such as the United States, Greece, Italy and France have had their credit ratings reduced, resulting in higher interest rates on borrowing, Mr Osborne will say the UK has hit record low levels because the coalition government has stuck to its plans to tackle debt.
He has based his claim on a calculation by the independent Office of Budget Responsibility (OBR).
It is understood the Chancellor will use those OBR findings as his central argument for sticking to his plan.
But his statement will come against the gloomy backdrop of downgraded economic and fiscal forecasts from the OBR, which is expected to trim its estimate of 2011 GDP growth for the fourth time, to about 1 per cent – well below the 2.6 per cent it predicted last year.
Bank of England governor Sir Mervyn King told MPs yesterday that growth would be flat for the next six months, as the unfolding eurozone crisis threatens the UK’s recovery.
He told the Treasury select committee “painful adjustments” will need to be made, irrespective of how the problems in the 17-nation currency bloc pan out.
The OECD, too, blamed the eurozone debt crisis for the global economy’s failure to achieve healthy recovery.
In a report, it forecast the UK’s GDP would shrink in the final quarter of this year and the first quarter of 2012 – the period from October to March – meeting the official definition of recession as two successive quarters of negative growth.
It slashed its prediction for 2012 UK growth to only 0.5 per cent – down from 1.8 per cent earlier this year – and said it expected unemployment to hit 9.1 per cent by 2013, putting another 400,000 people out of work.
OECD chief economist Pier Carlo Padoan backed the government’s fiscal discipline strategy, but warned that Mr Osborne might have to consider easing his programme of spending cuts if the debt crisis in the eurozone worsened.
Eurozone leaders had failed to take urgent action to tackle “the real and growing risks to the global economy”, Mr Padoan said.
He called for a “substantial” increase in the eurozone bailout fund and for the European Central Bank to play a greater role in shoring up the finances of debt-ridden nations to prevent the crisis dragging the world economy down.
Mr Osborne said: “The OECD is predicting deep recessions in many European countries. That is a challenge for Britain.
“What we can do with our policies is take Britain safely through this storm. But we have got to lay the foundations for future economic success.”
Business Secretary Vince Cable said a double-dip recession was “certainly possible” but insisted ministers would stick to their tight fiscal stance.
There was no proposal to slow the rate of spending cuts and the government was “not in a position” to offer tax cuts, he said.
Labour welcomed an increase in the government’s capital spending but said the coalition had not gone far enough to stimulate growth and that Mr Osborne’s Plan A was damaging the UK. Labour leader Ed Miliband said: “We welcome anything that will make a difference to the economy, but the problem is the government doesn’t really seem committed to changing course.
“In the circumstances, the right thing to do is accept that there is a real need to change the way they are doing things.”
In its quarterly inflation report, the Bank of England also slashed its central, or most likely, growth estimate to about 1 per cent for both 2011 and 2012 – compared with previous forecasts, the Bank’s projections reveal a greater chance of the economy shrinking in the first three quarters in 2012.
Howard Archer, chief UK and European economist at IHS Global Insight, said yesterday’s forecasts would mean another round of quantitative easing after October’s £75bn top-up.
He said: “The Bank’s monetary policy committee sees the economy essentially stagnant until mid-2012 and acknowledges there are significant downside risks to this outlook, primarily resulting from the danger of further eurozone deterioration.”
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Friday 24 May 2013
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