Slash-and-burn for Britain

This will be nauseatingly familiar to anyone in New Zealand. In the meantime debt levels increase exponentially... the destruction of civil society

George Osborne slashes welfare and extends austerity in autumn statement

Cuts in corporation tax, higher infrastructure spending and delay to fuel duty rise among measures announced by chancellor

the Guardian,

5 December, 2012

George Osbourne has announced deep cuts in welfare and Whitehall spending after admitting Britain's malfunctioning economy had left him unable to meet the government's targets for repairing the public finances.

The rating agency Fitch responded instantly to the chancellor's news that his austerity programme would be extended until 2018 – well into the next parliament – by warning that the UK was at risk of losing its coveted AAA credit rating.

Osborne announced cuts in corporation tax, more generous investment allowances for business, higher infrastructure spending and the scrapping of next month's planned 3p fuel duty increase in response to heavily revised-down forecasts from the independent Office for Budget Responsibility (OBR) that the economy will contract by 0.1% in 2012 and grow by just 1.2% in 2013 – the weakest post-recession performance in Britain's postwar history.

But the chancellor said limiting benefit increases to a below inflation 1% (saving £3.75bn), a fresh £31bn squeeze on government departments after 2014 and tax increases aimed at the better off, were unavoidable if Britain was to cut its borrowing. He sought to soften the blow by raising the tax-free personal allowance on income by £235 to £9,440.

"It's a hard road, but we're getting there. Britain is on the right track – and turning back now would be a disaster. We have much more to do," the chancellor said.

Fitch expressed concern at Osborne's decision to put back by a year to 2016-17 the date by which Britain's national debt will start to fall as a proportion of gross domestic product. "In our view, missing the target weakens the credibility of the UK's fiscal framework, which is one of the factors supporting the [AAA] rating," the ratings agency said.

Although two years of zero growth will mean that the government's budget deficit next year will be almost double the £60bn predicted in Osborne's first budget in June 2010, the chancellor said progress was being made. By including the expected £3.5bn proceeds of the auction of the 4G spectrum he was able to say that the deficit was coming down in each year of the current parliament.

The OBR predicted that it would take until late 2014 for the economy's output to return to its pre-recession level in early 2008 and that borrowing would be higher in each of the next four years than it expected at the time of the budget in March as a result. But while warning that job losses in the public sector will top 900,000 by 2018, the OBR backed the chancellor's view that the 2012 downturn was caused by factors beyond the government's control and would not increase Britain's structural budget deficit.

Osborne said the cut in welfare spending was justified because those in work were seeing their incomes rise more slowly than those on benefits.

But Julia Unwin, chief executive of the anti-poverty thinktank, the Joseph Rowntree Foundation, said: "Austerity is here to stay, and growth is as elusive as ever. That is tough for everyone – but hardest for the poorest. The uprating of benefits by 1% will increase poverty. Poorer people are facing destitution, perhaps a decade of destitution, felt by future generations."

In a shaky Commons performance the shadow chancellor, Ed Balls, said: "Growth down, borrowing revised up and the fiscal rules broken: on every target they have set themselves, they are failing, failing, failing. They are cutting the NHS, not the deficit; they are borrowing £212bn more than they promised two years ago; and they are cutting taxes for the rich, while struggling families and pensioners pay the price – unfair, incompetent and completely out of touch."

Facing what the Conservatives clearly intend to turn into a wedge issue, Labour refused to say whether it would back the three-year squeeze in welfare benefits – including jobseeker's allowance, tax credits and child benefit – when the government puts the issue in the form of a bill to a Commons vote early next year. Labour claimed 60% of those expected to suffer the squeeze are not benefit scroungers but people in work, including 3.7m on child tax credit.

Balls said Labour will assess whether to vote for the squeeze when it has seen the government's legislation, but the opposition claimed the welfare changes meant that in 2013-14, along with all other changes to taxes and benefits which are set to take effect in April 2013, a one-earner family on £20,000 with two children will lose £279 a year. Osborne also faced an attack from the right for dragging about 400,000 more people into the 40p rate of income tax and reducing the amount of tax relief those on higher incomes receive on pension payments.

Despite the welfare squeeze and the failure to persuade Osborne for the second time in a year to back the mansion tax, the Liberal Democrat leadership embraced the autumn statement as a joint enterprise. The party's deputy leader, Simon Hughes, said: "We specifically won our battle to get the tax threshold raised, that was in our manifesto last time and out of all the policies that was our biggest commitment." On welfare he said: "We fought our corner for people on lower incomes and won considerable battles."

Vince Cable, the business secretary, said: "The worst thing to have done would have been to impose more austerity, more cuts now, in the middle of a very difficult period of slow growth. So we're spreading it out over a longer period, rather similar to what the Labour party are arguing, though of course they now criticise us."

The need to extend the point at which austerity ends to 2017-18 has required Osborne to set out further spending cuts worth over £31bn between 2014 and 2018 or a real-terms cut of 19% if health, schools and international development continue to be protected. The Social Market Foundation predicted that the budget for the Home Office and Ministry of Justice would be more than 40% smaller in 2018 than they were in 2010.