Britain’s economic prospects take a hammering as Chancellor George Osborne’s autumn statement reveals that growth will be lower than expected and borrowing far higher.
In his autumn statement to parliament, Mr Osborne admitted that the key assumptions behind the government’s programme were too optimistic.
Ahead of Wednesday’s strikes, he risked further antagonising public sector workers by saying wage increases will be capped at 1 per cent after the current two-year pay freeze ends.
Using figures from the independent Office for Budget Responsibility (OBR), he said growth this year would be just 0.9 per cent, 0.7 per cent in 2012 and 2.1 per cent in 2013.
In March, the OBR forecast growth of 1.7 per cent in 2011, 2.5 per cent in 2012 and 2.9 per cent in 2013.
On Monday, the OECD economic forecaster said Britain had already entered a shallow, six-month recession, with negative growth in the final quarter of this year and the first three months of 2012.
Who are the winners and the losers in the autumn statement?
Lower growth means the government has to borrow more because tax revenues fall and spending on unemployment rises – and it is the latest borrowing projections that cause most concern.
Mr Osborne’s strategy had been to eliminate the structural deficit by 2014-15. But he admitted this would now take a year longer.
Borrowing this year will be £127bn – £5bn more than forecast in March. In 2012-13 it will be £19bn more, at £120bn, and £30bn more, at £100bn, in 2013-14. But Mr Osborne said low market interest rates meant repayments would be £22bn lower than predicted over the course of this parliament.
He said Britain had the highest deficit in its history in a time of peace and it was “left by the last government to this government to sort out”, adding: “This feeds directly through into borrowing numbers that are falling, but not at the rate that had been forecast.”
Public sector pay will continue to be squeezed, rising by just 1 per cent a year from 2013-15 after the current two-year pay freeze ends.
Working-age benefits will rise in line with inflation, providing a “significant boost to the incomes of the poorest”. The child element of the child tax credit will increase by £125, but other elements of the working tax credit will not be uprated. The rise in the state pension age to 67 will be brought forward to 2026.
Mr Osborne said: “Much of Europe is heading into a recession caused by chronic lack of confidence of countries to deal with their debt. We will do whatever it takes to protect Britain from this debt storm while doing all we can to build the foundations of future growth.
“Today we set out how we will do that by demonstrating that this country has the will to live within its means and keep interest rates low.”
Shadow Chancellor Ed Balls said the OBR figures showed the economy flatlining and the Chancellor forced to increase borrowing to pay for measures to stimulate growth. “Plan A has failed and it’s failed colossally,” Mr Balls told MPs.
Amid the gloom, the chancellor set out his plans for making people’s lives easier, with a delay in the planned 3p rise in fuel duty, more money to pay for free childcare for some two-year-olds, and tax breaks for small businesses.
As expected, one of the highlights of the speech was a £30bn investment programme to modernise the country’s infrastructure, with £20bn of this coming from pension funds.
There was also a £40bn scheme to underwrite loans to small firms, a £1bn programme to subsidise jobs for young people, a 50 per cent discount for social housing tenants who want to buy their homes, and train fare rises capped at 1 per cent above inflation.