UK Budget 2013: public sector braced for more cuts

Mr Osborne said he would set out the scale of the latest squeeze on public spending over the next few years when he delivers Wednesday’s Budget and vowed to continue with “painstaking work” to repair the economy.

• Budget preview: Osborne’s out of easy choices

The Chancellor’s stark warning about more years of pain for public spending came as he faced mounting pressure to change course and kick-start growth, with the UK teetering on the brink of a triple-dip recession.

Mr Osborne said he would use the Budget to “set out the envelope of the further savings required from departments” – the total to be spent across the UK government – for the next Spending Review in 2015.

However, the Chancellor revealed that plans for a flat-tier pension, worth around £144 a week, would now be brought forward to 2016 – a year earlier than planned.

The move will mean that an extra 400,000 people across the UK will be paid the money a year earlier than expected.

Under the existing system the full state pension is £107.45 a week, but can be topped up to £142.70 with the means-tested pension credit, and a state second pension which is based on National Insurance contributions.

Mr Osborne told BBC One’s Andrew Marr Show that said the “generous” flat-tier pension would be “a huge boost for people who want to save for their retirement”.

He said: “That is another example of how this government is helping people who want to save, people who want to leave something to their children like their home, people who want to get on in life, people who do the right thing.”

Mr Osborne also said that a cap on social care costs, originally planned to be set at £75,000 and introduced in 2017, will now be introduced in 2016 at a level of £72,000.

Although the cap will not apply north of the Border, SNP ministers will be handed equivalent funding based on the population for Scottish Government spending plans – known as “Barnett consequentials” – as part of the Barnett formula funding for Scotland.

Scotland’s finance secretary John Swinney seized on the announcements on social care and housing to demand consequential funding for the scheme to fund major building projects in Scotland.

The SNP government has claimed that a programme of infrastructure projects worth over £800 million could go ahead if the UK government reverses some of its cuts to capital and invests in growth.

Mr Swinney, in a letter to the Chancellor, said that there was a “substantial shortfall” in funding for some areas of social housing in Scotland. He said: “Given current economic conditions, I believe that there is an overwhelming case for using the budget to provide an immediate boost to capital investment.

“Taken together, targeted action to support capital investment, mitigating the negative impact of the UK government’s welfare reforms, and enhancing economic security can help accelerate the economic recovery and in turn rebuild the UK public finances.”

But Mr Osborne insisted ditching his plan to restore the nation’s finances could leave the UK facing an economic disaster like Cyprus.

The Chancellor’s gloomy assessment came as he rejected calls for a change in approach, saying there was no “miracle cure” to the country’s troubles.

The Chancellor has come under pressure from within his own party on expenditure, with former Tory Cabinet minister Liam Fox demanding corporation tax be reduced and far bigger cuts to public spending, notably welfare.

However, shadow chancellor Ed Balls warned it was the “economics of the lunatic farm” to call for more spending cuts and tax rises when those were the policies which had choked off the recovery.

He accused Mr Osborne and Prime Minister David Cameron of refusing to consider a change in approach because of the political fallout, highlighting calls for a policy shift from Lib Dem Business Secretary Vince Cable.

Last night, a Scottish business leader called on the Chancellor to do more to help the private sector boost investment and create jobs. David Lonsdale, assistant director of CBI Scotland, said: “The Chancellor must continue to pursue fiscal rigour with the goal of eliminating the deficit, while at the same time pursuing measures which will aid the private sector recovery.

“Shifting money from current to capital spending, coupled tax reductions which stimulate business investment, should be on the Chancellor’s priority list.”

Labour’s shadow secretary of State for Scotland, Margaret Curran, called for a temporary VAT cut and the return of the 10p tax rate to support low income families.

She said: “Scots know that the Chancellor’s economic policies are failing and we can’t afford to carry on with more of the same.”

Chief Secretary to the Treasury Danny Alexander yesterday revealed the budget will also include a crackdown on companies who dodge employment tax by putting their payrolls in tax havens.

He made the announcement in a speech to the Scottish Liberal Democrat conference. He also signalled there will be more cuts to come after Chancellor George Osborne’s Budget on Wednesday.

Addressing delegates at the West Park Conference Centre in Dundee, Alexander said the Exchequer was losing around £100 million a year because of companies running their payrolls through offshore locations such as Jersey.

He said the practice was “completely counter” to the spirit of the law and “neither right nor fair”.

The Lib Dem MP for Inverness, Nairn, Badenoch and Strathspey said: “I can announce that in the Budget we will introduce new powers to clamp down on companies who avoid tax by putting their payrolls in tax havens.

“Our message is clear. British firms employing workers in Britain must pay British taxes – there is no hiding place. Everyone must pay their fair share.”