George Osborne admitted to the House today that he has been forced to extend austerity measures until 2018, and has missed his own target for reducing the national debt. However, he said the message from today’s statement was that Britain was “on the right track and turning back now would be a disaster”.
Tax was a key theme of the statement, with the chancellor pledging to continue a crackdown on those who did not pay the correct amount of tax.
“There are too many who illegally evade their taxes or use aggressive tax avoidance schemes,” he said. “We will put more money in to making sure international companies pay their fair share of tax.”
Although Whitehall department resource budgets are to be cut by 1% next year and 2% in 2014, HMRC will join the NHS in being exempt from these cuts.
Osborne predicted that HMRC would recover £5bn over six years by a programme targeting undisclosed funds in Swiss bank accounts. Despite support from his coalition partners the Liberal Democrats, he rejected a “mansion tax” to charge those in houses worth more than £2m.
Instead, the government is to cut pension tax relief - the annual tax free allowance for pensions was reduced from £50,000 to £40,000.
In a move to support businesses, Osborne announced a reduction in corporation tax by 1% to 21% from April 2014, which he said was the lowest rate in the Western world.
“It is an advert for our economy that says come here, create jobs here, Britain is open for business,” the chancellor said.
Small business rate relief was extended by one year to April 2014, and investments in infrastructure were announced including an extra £1bn to be spent on roads, and an extension of the Northern Line on the London Underground.
However, the chancellor was forced to present a massively downgraded economic forecast for this year, based on new predictions from the Office for Budget Responsibility (OBR). In March this year the government predicted growth of 0.8% for the year, but since falling in to a double-dip recession, the OBR is now saying the economy will shrink by 0.1% overall in 2012. This suggests they are expecting another negative quarter of growth for Q4.
The new predictions suggest the economy will grow 1.2% next year (down from a prediction of 2% growth in March), 2% in 2014, 2.3% in 2015.
The OBR said the economy was performing “less strongly than expected” but that the government was still “on course” to meet its target of balancing the budget over a five-year period.
Osborne said that he wanted to show he understood the pain being felt by the public, and was accordingly going to scrap the planned 3p fuel duty increase and increase the income tax personal allowance from April by a further £235.
The chancellor, who started the statement by saying, “It’s taken time, but the British economy is healing”, was frequently met by jeers in the House and had to restart his statement due to noise from MPs. 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.”
In responding to the Statement, shadow chancellor Ed Balls said it was clear to see the “true scale of the Chancellor’s economic failure”.
“He’s not waving, he’s drowning,” said Balls. “And he tries to claim it’s not his fault.”
Balls highlighted that the chancellor had predicted 4.6% growth over the past few years but only achieved 0.6%. “Why can’t he see that you won’t get the deficit down without a plan for jobs and growth?” Balls added.