Osborne bashes benefits: Increases capped at just ONE PER CENT for three years after full toll of 'worst economic shock since WW2' is revealed
Chancellor uses Autumn Statement to say working age benefits will no longer sie in line with inflation, with 60% of families affected
Austerity to last until 2018 with economy forecast to SHRINK this year
2008 economic crash was worse the worst since World War TwoFuel duty rise of 3p planned for 2013 abandonedWealthy see tax break on pensions cut to raise 1billionPerformance-related pay for teachers as 1billion is found for new schoolsTaxman to hit corporations which avoid paying their way50p tax rate meant half of millionaires 'disappeared'But 1million more people are dragged into 40p tax rate in two years
Lucrative incentives for fracking industry to come to Britain5billion building bonanza including HS2 extended beyond Birmingham
Workers on minimum wage have tax bill 'cut in half' by rise in tax allowance
18:52 GMT, 5 December 2012
George Osborne today squeezed the welfare bill, insisting benefits could no longer rise faster that average wages.
In a politically-charged Autumn Statement designed to target 'strivers', the Chancellor announced all benefits will rise by just 1 per cent for the next three years, which will mean a real terms cut.
The 3.7billion move creates a major dividing line with Labour, with the government planning a crunch vote in the New Year designed to pile pressure on the opposition to back the curbs or explain why the welfare bill should continue to soar.
Amid grim economic forecasts, Mr Osborne was forced admit he had failed to meet his own targets for getting a grip on Britain's debt, blaming the 2008 crash which had created the worst economic shock since World War Two.
Statement: George Osborne today admitted growth in Britain had again been downgraded by the OBR, with a contraction of 0.1 per cent in 2012
All smiles: Chief Secretary to the Treasury Danny Alexander, Chancellor of the Exchequer George Osborne and David Cameron react to Labour after the Autumn Statement
But the revised growth figures failed to spook investors, with the FTSE 100 index of 100 leading UK companies closing up 24 points 5892.08.
Mr Osborne also announced a plan to limit the amount the wealthy can put into pension pots tax free to 40,000, arguing the richest must also contribute to tackling the deficit.
The new round of tax rises and spending cuts were needed because the recession was worse than previously thought – with GDP contracting by 6.8 per cent in 2008-09, Mr Osborne revealed.
'Those with the most should contribute the most, and they will,' he said.
'But fairness is also about being fair to the person who leaves home
every morning to go out to work and sees their neighbour still asleep,
living a life on benefits.
'As well as a tax system where the richest pay their fair share, we have
to have a welfare system that is fair to the working people who pay for
The Chancellor broke the
link between inflation and the ballooning welfare bill, announcing that
out-of-work benefits will rise by just one per cent for the next three
Under previous rules each April
benefits were increased by the inflation rate in the previous September,
which this year was 2.2 per cent.
But Mr Osborne announced that Jobseekers Allowance, Employment and Support Allowance and Income Support will be cut in real terms, saving 3.7billion by 2016-17.
In addition to curbing rises in
out-of-work benefits, it will also mean lower
rises for the low paid on income support and housing benefit. Maternity
pay and sick pay will also be affected.
Child benefit is already frozen for next year, but from 2014 will also only rise by one per cent. The disabled, carers and pensioners will not be affected.
Mr Osborne had favoured a freeze in benefits, but reached the compromise deal with the Lib Dems after weeks of wrangling.
Housing benefit is claimed by
3.5 million, income support is claimed by 900,000, and job seekers’
allowance paid to 1.6 million unemployed.
Labour said 60 per cent of families would be affected in some way with a real terms cut in benefits payments.
It also suggested women would be hit four times harder by the tax and benefit changes.
Citizens Advice chief executive Gillian Guy said: 'Holding down benefit increases to one per cent is better than a total freeze, which would have been disastrous for people on the lowest incomes already having to spend a higher proportion of their income on essentials when rents, food and heating bills are all rocketing.'
Alison Garnham, chief executive of Child Poverty Action Group, said: 'Despite all the talk, working families are once again at the front of the queue for spending cuts.
'With 6 in 10 poor children living with a working parent, real terms cuts to tax credits, housing and child benefits are grim news.'
The government claims that annual rises in benefits can be signed off by ministers but because it had set out a three-year plan for one per cent annual increases legislation is needed.
A Welfare Uprating Bill will be published before Christmas, with the first vote to be held in January.
Tory strategists hope to the curb on benefits rises will be as popular as the cap limiting the amount any household can receive in state handouts to 26,000 – the average household income.
Sarah Jackson, chief executive of the charity Working Families, said: 'The Chancellor’s statement today does not give low-income working parents confidence that he’s on their side.
'With inflation at 2.7 per cent, his proposed 1 per cent increase in benefits will hit many working parents in receipt of tax credits and child benefit hard, when they are already struggling with pay freezes and rising costs, including childcare.
Rises in pensions and help for people on disabilities benefits will go ahead as planned in line with inflation.
In a major blow to the Government, Mr Osborne had to announce that the Office for Budget Responsibility predicts the economy will shrink
this year by 0.1 per cent after forecasting growth of 0.8 per cent in
2012 just nine months ago.
And in a shock move, Mr Osborne ended
national pay deals for teachers, giving schools more freedom to offer
performance-related pay in the classroom. But he insisted staff in the
NHS and prison service will not be affected.
He said: 'The British economy is healing after the biggest financial crash of our lifetimes.
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 per cent this year, then 76.8 per cent next year, 79 per cent in 2014-15 and 79.9 per cent in 2015-16.
Only then will it fall to 79.2 per cent in 2016-17 and 77.3 per cent in 2017-18.
Labour's shadow chancellor Ed Balls claimed the government's fiscal strategy has been 'completely derailed'
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 insisted it was the ongoing Eurozone crisis which was not blame, and not his own policies.
Next year growth is expected to be just 1.2 per cent, down from 2 per cent forecast in March.
admitted that Britain's growth forecast had been downgraded by the OBR –
with just 1.2 per cent in 2013, 2.0 per cent in 2014, 2.3 per cent in 2015, 2.7 per cent in 2016, and
2.8 per cent in 2017.
Labour's shadow chancellor Ed Balls said the figures showed the 'true scale of this Government's economic failure'.
He added: 'The Chancellor's fiscal strategy has been completely derailed.
'The defined purpose of the Government, the cornerstone of the coalition, the one test they set themselves – to balance the books and get the debt falling by 2015 – is now in tatters.'
The state pension will rise by 2.5 per cent – the first time the coalition’s so-called ‘triple lock’ has kicked in.
Under rules introduced by the government, pensions must rise by the rate of inflation, earnings or 2.5 per cent – whichever is the highest.
Mr Osborne also confirmed that public sector workers whose pay has been frozen will receive a 1 per cent rise from next April.
Admitting his key target to get
Britain’s debt under control by 2015 will be broken, the Chancellor used
his Autumn Statement said everyone had to make a contribution to
getting the economy back on track.
From 2014, the amount high earners
can be put into their pension pot tax-free will be cut from 50,000 to
40,000, raising 1billion.
New figures on the scale of the 2008 economic crash showed the impact had been the worst since World War Two
He said that the Government 'needs to raise more' from the wealthy. He ruled out a new tax on property, as 'intrusive, expensive and raise little'. 'We are not having a new homes tax.'
Well-off older people will be taxed on more of their pensions, Mr Osborne announced.
The tax-free allowance for pensions will be cut from 2014/15 from 1.5million to 1.25million over a lifetime.
In addition, the annual tax-free allowance will be cut from 50,000 to 40,000. It means wealthy people with large pension pots will see more of it clawed back in tax. Mr Osborne said the move would save 1billion a year.
It all means richest and the poorest are the biggest losers from the mini-budget.
Figures buried in Treasury documents show that those in the top 20 per cent richest people will lose more than any other group as a proportion of their income.
But the next unluckiest group are the bottom 20 per cent – largely the result of cuts in the value of benefits.
The TUC claims many working families will be 3,000 worse off as a result of Mr Osborne’s measures.
Documents released by the Treasury show that the average household will lose around 3.2 per cent of their income.
This graph shows how those at the top and the bottom have been hardest hit by all the measures on spending, tax, tax credits and benefit changes in 2014-15 as a percentage of their income in 2010-11
But the department also shows how much different households will lose depending on their annual earnings.
Those in the top 20 per cent of earnings will lose a much greater proportion of their wealth – around 4.3 per cent.
The next unluckiest group are the bottom 20 per cent. They will lose some 3.8 per cent of their income.
Those who come out best are those in the second richest group – those on between 60 per cent and 80 per cent. They will lose around 1.5 per cent of their income.
The Chancellor announced a boost for the low paid with plans to raise the personal allowance for income tax by 235 more than expected.
It means that people will not have to pay income tax on the first 9,440 of their earnings. It is the biggest year-on-year cash rise ever in the personal allowance.
In addition, Mr Osborne said that this increase in the allowance will be extended to higher earners for the first time.
people will pay top rates of income tax than previously, thanks to an
announcement that the threshold for the 40 per cent rate will rise over
the next few years.
It will go up from 41,450 to 41,865 in 2014 and 42,285 in 2015.
For businesses, he announced that the main rate of corporation tax will be cut by 1 per cent to 21 per cent from April 2014.
Better off on benefits How each April the rise in state handouts has risen by more than the average annual increase in wages
Troubled times: How future growth has been downgraded by the OBR again and again since June 2010
Watched by is wife Frances in the
Commons public gallery, he added: 'The message from today's Autumn
Statement is we are making progress.
'It is a hard road that we are travelling on but we are on the right track.'
Osborne signalled his determination to continue to blame Labour for
Britain’s economic woes, claiming it was in the ‘danger zone’ when the
coalition was formed.
‘People know we are facing deep seated problems at home,’ he said.
a direct attack on the governments of Gordon Brown and Tony Blair, he
blamed a ‘decade of debt and the failure of Britain to compete in the
VIDEO: GEORGE OSBORNE ADMITS MISSING RECOVERY TARGETS
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Mr Osborne told Cabinet ministers this morning that everyone had to make a contribution to tackle Britain's debts 'in a fair way'
Net borrowing: How the outlook is looking much more grim than it did in March
Debt mountain: The UK's public sector net debt is set to get worse than previously thought
Not so sweet: Unison members wearing George Osborne masks protest outside Parliament today with a sign warning of a triple-dip recession
OFF TARGET: WHY AUSTERITY WILL LAST UNTIL 2018
When George Osborne became Chancellor in May 2010 he set himself two targets.
But the slower than expected recovery, and the increased borrowing that followed, means he has been blown of course.
Target One: Eradicating the deficit
The first was to tackle the deficit, which is the gap between the amount the government spends each year and what it raises in taxes.
As the economy grows after the recession and tax revenues rise, that gap should close.
Mr Osborne said he wanted to eradicate the structural deficit – the overspend which remains even when the economy has recovered – over a rolling five-year period.
Target Two: Cutting debt as a proportion of the economy
Mr Osborne said that by 2015-16, government debt as a proportion of the entire economy (GDP) would start falling.
The Chancellor has admitted that he is off course. ‘It is clearly taking longer to deal with Britain's debts.
'It is clearly taking longer to recover from the financial crisis than one would have hoped, but we have made real progress,’ he told the BBC.
WHAT IS THE AUTUMN STATEMENT
The Treasury has to make two big statements to the House of Commons every year.
In the spring the main Budget traditionally deals with all the big tax and spending decisions, including duty on alcohol and cigarettes.
It is normally held a few weeks before the start of the new tax year at the beginning of April.
Under the Labour government, Gordon Brown’s Pre-Budget Report later in the year became almost as significant, with major announcements included which would normally have been in the Budget.
George Osborne has returned to the idea of a more straightforward Autumn Statement, updating forecasts on government spending and borrowing.
Mr Osborne announced a number of other major developments announced today:
Fuel duty rise of 3p planned for 2013 abandoned
3p rise in fuel duty planned for January will not go ahead, to ease the
pressure on motorists who have seen prices at the pump soar.
a rare piece of good news in what will be a grim economic statement
today, George Osborne has agreed not to impose the New Year hike.
Mr Osborne said he had been advised to delay the rise until April, but has instead decided to scrap it 'completely'.
However, a planned 3p fuel duty rise for April next year will be delayed until September 2013 but will go ahead.
If the Chancellor had gone ahead with
the January rise it would have added 2.53 to the cost of filling up a
family car. Experts say it will save the average driver 7.69-a-month.
50p tax rate meant half of millionaires 'disappeared'
The number of people declaring to the taxman that they earned more than
1million fell by half after Labour’s 50p tax rate for high earners was
Tax revenues from the rich fell by 7billion, Mr Osborne said.
‘A tax raid on the rich that raises almost no money is a con. We’re
going to have a top rate of tax that supports enterprise and we’re going
to raise more money from the rich.’
Labour introduced the 50p additional tax rate in 2010-11 for earners
over 150,000. Mr Osborne attracted stiff criticism in the Budget this
year when he announced he would cut the rate to 45p.
But today he said the 50p rate was counter-productive, and caused the
very wealthy to exploit tax avoidance measures to avoid paying it.
…but 400,000 more people dragged into 40p tax band
The number of people dragged into the high rate tax band will rise by 400,000, the Treasury admitted.
The rate at which people pay 40% tax
will rise by only one per cent, below average pay rises and inflation.
In 2014-15 the threshold will be 41,865 and in 2015-16 it will be
It means an extra 400,000 more people will be drawn into the tax band than if it threshold had risen in line with inflation.
However, the Treasury insisted that
the rise in the amount of money people can earn before paying any tax
means higher rate taxpayers will still be better of.
Based on all the changes the coalition has made, the new higher rate taxpayers will typically be over 270 better off in real terms over the Parliament, documents showed.
Wealthy see tax break on pensions cut to raise 1billion
Britain’s richest older savers are to be taxed on more of their pension pots, Mr Osborne announced.
tax-free allowance will be cut in 2014/15 from 1.5million to
1.25million over a lifetime and the annual tax-free allowance will be
cut from 50,000 to 40,000.
They been hit just a year after the amount they could pay tax-free into their pension pots went from 255,000 a year to 50,000.
Critics say that this is a disincentive to save at a time when the Government is calling for financial prudence. Mr Osborne said the move would save 1billion a year.
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, he
Chancellor Ed Balls claimed the Government plans to raise 1 billion
from pension tax relief at the top end of the pay spectrum raised less
than 1.6 billion given away in Mr Osborne’s first budget on the same
Schools to set performance-related pay for teachers
will be given greater freedom to set teachers’ pay according to how
well they perform in the job, George Osborne announced.
The Chancellor said national pay bargaining for civil servants, prison officers and NHS staff will continue.
But it will end for teachers – giving heads more ability to pay good teachers more.
his Autumn Statement speech, he said: ‘The School Teachers’ Review body
recommends much greater freedom to individual schools to set pay in
line with performance.
‘My right honourable friend the Education Secretary [Michael Gove] will set out how this will be implemented.’
1bn for new academies and free schools
Osborne said that while most Government departments will have to
shoulder greater cuts, the schools budget will be exempted, along with
cuts to raise money for building projects, including 1billion for the
construction of 11 new schools and academies.
said: ‘Since improving our education system is the best investment in a
competitive economy, I am today committing 270million to fund
improvements in further education colleges and 1billion to expand good
schools and build 100 new free schools and academies.
will continue to seek efficiency savings in the NHS and in our schools,
but that money will be recycled to protect spending in these priority
Taxman to hit corporations which avoid paying their way
The Chancellor pledged a crackdown on firms who get out of paying their fair share in corporation tax.
acted following growing fury over multinational companies like Google,
Amazon and Starbucks who paid nothing or very little despite huge sales.
Osborne said he would give HM Revenue and Customs a further 77million
to fight tax avoidance by wealthy individuals and global firms.
He said the action he plans to take will raise some 2billion a year. The Chancellor said he wanted a ‘tax system where the richest pay their fair share’.
‘The vast majority of people, rich or otherwise, pay their taxes and make their contribution,’ he told MPs. But
there are still too many who illegally evade their taxes, or use
aggressive tax avoidance in order not to pay their fair share.’
Osborne only briefed the Cabinet this morning on the details of his
mini-budget, in an attempt to stop it being leaked earlier.
The Prime Minister and Chancellor
told senior ministers that the coalition Government was 'equipping
Britain to succeed in the global race'.
Lucrative incentives for fracking industry to come to Britain
massive expansion of controversial shale gas exploration – known as
fracking – has been triggered by George Osborne as he unveiled plans for
generous and lucrative tax breaks for energy investors today.
the fury of environmentalists, the Chancellor wants to encourage more
companies to use the technique, which involves creating explosions deep
underground to release valuable gas.
Critics say it has the potential to contaminate ground water and they point out that it has already caused earthquakes.
Osborne's 'generous new tax regime' will encourage fracking exploration
as shale gas reserves could be worth 1.5trillion to Britain.
are consulting on new tax incentives for shale gas and announcing the
creation of a single office so that regulation is safe but simple,' he
told MPs today.
Office for Unconventional Gas and Oil will join up responsibilities
across government departments to provide a single point of contact for
investors and streamline the regulatory process.
Even if ten per cent of the gas in unpopulated areas is extracted, it would still be worth 150billion.
5bn to be spent on infrastructure including HS2
Chancellor will plough billions of pounds into building projects –
including the extension of the controversial High Speed 2 line to the
north of England.
George Osborne hopes that spending money on new buildings and transport projects will help the stumbling economy get going.
used his Autumn Statement to unveil 5billion plans to update key
sections of the A1 and the M25, and extend the London Underground.
another 120,000 new homes will be built in a bid to tackle the chronic
shortage of housing. However, this will prove controversial as some may
have to be built on green belt land.
Science will also benefit – with an extra 600million for new research facilities.
Workers on minimum wage have tax bill 'cut in half'
further increase in the amount workers can earn before paying tax has
put the coalition within ‘touching distance’ of its target of 10,000,
Mr Osborne said.
2010 election, the personal tax allowance was only 6,475. Increasing it
to 10,000 was a central demand of the Liberal Democrats when the
coalition was formed.
It was due to rise to 9,205 next April, but the Chancellor said he would go further and increase by another 235.
This means a total increase next year of 1,335 – the highest cash increase ever.
Osborne said: ‘People will be able to earn 9,440 before paying any
income tax at all. This is a direct boost to the incomes of people
working hard to provide for their families.
working full time on the minimum wage, will have seen their income tax
bill cut in half and we are within touching distance of the 10,000
Higher rate taxpayers, earning more than 41,000, will also see their tax bill cut.