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Osborne slashes UK growth forecasts

Mr Osborne also promised government guarantees for another £40bn of infrastructure projects.

Story highlights

  • Chancellor George Osborne said the welfare system should be "fair to the working people that pay for it"
  • On the richest households, Osborne rejected the idea of a new "mansion tax" on expensive properties
  • Osborne said Britain would miss debt falling target by 2015-16 as a percentage of national income by a year

George Osborne said he had missed one of his key austerity targets and would extend the programme by another year as the country's independent budget watchdog slashed its economic growth forecasts.

The Office for Budget Responsibility now expects the economy to shrink 0.1 per cent this year and grow by 1.2 per cent next year, down from its 0.8 per cent and 2 per cent growth forecasts in March.

Mr Osborne said Britain would miss its target to have debt falling by 2015-16 as a percentage of national income by a year. He also said he would need to extend austerity by another year to 2018 to close the budget deficit.

He said any measures announced would be "fiscally neutral" in this parliament.

Britain has become the global poster-child for deficit-reduction, but feeble economic growth and deteriorating public finances this year have put the coalition government under increasing pressure. Mr Osborne's critics claim austerity has proved self-defeating.

"The public know that there are no miracle cures," he told the House of Commons. "Just the hard work of dealing with our deficit and ensuring Britain wins the global race."

"The message from today's Autumn Statement is that we are making progress. It is a hard road but we're getting there and Britain is on the right track and turning back now would be a disaster."

Mr Osborne said the welfare system should be "fair to the working people that pay for it". Arguing that those on out-of-work benefits had seen incomes rise at twice the rate of working people, he said benefits would increase 1 per cent next year for the next three years, much lower than the 2.2 per cent that had been expected for 2013-14. This will save £3.7bn a year by 2015-16.

Another £1bn of revenue will come from below-inflation increases for the next two years in the higher-rate threshold for income tax.

He also cut the corporation tax rate by another 1 percentage point, bringing it down to 21 per cent from April 2014.

The government has already announced it will spend another £5bn on new schools, roads and science projects, in an attempt to boost economic growth. But this will have to be paid for via deeper cuts across Whitehall. Only education and health are protected from the austerity axe.

Mr Osborne also promised government guarantees for another £40bn of infrastructure projects.

He said he would do more to collect tax from multinational companies, which he hoped would increase the amount of money collected through tackling evasion and avoidance by about £2bn a year.

Focusing on the richest households, Mr Osborne rejected the idea of a new "mansion tax" on expensive properties. But he said he would restrict tax relief on pension contributions for higher-rate tax payers, reducing the annual limit from £50,000 to £40,000 and the lifetime limit from £1.5m to £1.25m.

To help the "squeezed middle", Mr Osborne cancelled a planned 3p rise in fuel duty. In addition, from next April, the personal allowance people can earn before paying income tax will rise by more than planned to reach £9,440.

"We are helping those who want to work hard and get on," he concluded.

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