GEORGE Osborne cheered motorists and gave millions a small income tax cut – but punished the poor on benefits and paved the way for more deep town hall cuts.
In a ‘mini-Budget’, the Chancellor grabbed headlines by axing a planned 3p hike in fuel duty and by further raising the personal tax allowance next April, giving 24m workers a £47 boost.
But he paid for the give-aways by slapping a one per cent cap on increases in benefits and tax credits for the jobless and low-paid for the next three years – below the likely rate of inflation.
Charities had warned the move would increase poverty and the Treasury’s own tables showed the poorest 10% of people will lose more of their income than any other group, except the very richest.
Town halls – still reeling from massive budget cuts over the last two years – were also put in the firing line, with a further £445m to be lopped off local government spending in 2014-15.
Liverpool’s Deputy Mayor and cabinet member for finance, Councillor Paul Brant, said: “We had already estimated we were facing £143m of cuts between now and 2017 before the autumn statement was announced.
“This was on top of the £14m we have lost over the last two years. We get 80% of our funding from the Government, with only 11% of our income generated by council tax.
“It will take some time to crunch the numbers to work out the exact impact, but we are already the worst hit council outside of London and this news means we are likely to face further difficult and hard choices over which services we can continue to provide. We will continue to lobby the Government hard over the consequences that their spending cuts will have on the people of Liverpool.”
A major shake-up will aim to curb the long-term costs of the private finance initiative (PFI), but Whitehall sources insisted it would not affect the £451m plans to build a new Royal Liverpool Hospital.
Mr Osborne also faced the disappointment of being forced to abandon his plans to introduce lower ‘local pay’ in the North, in the NHS, prisons and the civil service.
The Chancellor saw the move as key to economic revival in areas such as Merseyside, but independent pay review bodies ruled it out. Schools, however, will be allowed to link teachers’ pay to classroom performance.
Deputy Prime Minister, Nick Clegg, who has been against the plans, said: “I can today confirm that the Coalition Government will not impose new regional pay rates or zones from the centre – and we won’t be returning to regional pay during this parliament. I want public sector workers in Liverpool to rest assured: what matters is how hard you work, not where you work, and that isn’t about to change.
“I have been clear throughout that I would not support a move that either short-changed public sector workers or exacerbated the North/South divide at such a difficult time.
“It’s clear to me how worried our public sector workers have been that – on top of all the other pressures they’re under – they’ll face a pay postcode lottery as well.
“We are yet to see hard evidence to prove the claim that public sector salaries are crowding out business growth. And, on the contrary, there’s a real concern that any steps that reduce Liverpool’s wages would take money out of local people’s pockets, hitting the local high street hard.
“Public sector workers should have the confidence and stability that come from national pay bands. So they will remain. The case for regional pay has been looked at. It’s been lost. And, for this Coalition Government, that case is now closed.”
And Mr Osborne also faced the embarrassment of missing one of his cherished economic rules – that debt will be falling as a proportion of GDP, by 2015.
Instead, he was forced to extend the “age of austerity” by at least one further year, to 2018 – despite pledging, two years ago, to “balance the books” by the end of the parliament.
Britain’s economy is now forecast to shrink this year – by 0.1% – and growth will be sluggish next year, at just 1.2%, according to the independent Office of Budget Responsibility (OBR).
In the Commons, Mr Osborne faced howls of laughter from the Labour benches as he told MPs: “It’s taking time, but the British economy is healing.”
He added: “We are making progress. It’s a hard road, but we are getting there. Britain is on the right track – and turning back now would be a disaster.”
But Ed Balls, the Shadow Chancellor, hit back, saying: “After two and a half years, we can see – and people can feel in the country – the true scale of this government’s economic failure.
“And it is people already struggling to make ends meet – middle and lower income families and pensioners – who are paying the price.”
A spending review will announce, by next summer, where an extra £10bn of cuts will be found for 2015-16 – which means the Conservatives and the Liberal Democrats must reach agreement.
Before then, Mr Osborne has set what many Labour MPs immediately saw as a cunning “trap” – a Bill to enact the three-year real-terms cuts to working benefits, which he is confident will be popular and which will defy Labour to vote against.
Meanwhile, local enterprise partnerships (LEPs) will be able to bid for an extra £250,000 per year to deliver their strategic plans and for a £1.5bn loan for a single infrastructure project.
There will be a new “local pot” of cash in 2015, to deliver housing, transport, skills and welfare-to-work schemes – a nod to radical plans put forward by Lord Heseltine – but no details on how much each LEP might receive.
KEY POINTS OF AUTUMN STATEMENT
The 3p-a-litre increase in fuel duty, planned for next January, was cancelled
Basic income tax threshold to be raised by £235 more than previously announced next year, to £9,440
Threshold for 40% rate of income tax to rise by 1% in 2014 and 2015, from £41,450 to £41,865 and then £42,285
Main rate of corporation tax to be cut by extra 1% to 21% from April 2014
Temporary doubling of small business rate relief scheme to be extended by further year, to April 2014
Departments to reduce spending by 1% next year and 2% the year after - while local government budgets cut by 2% in 2014
£5bn over six years expected from treaty with Switzerland to deal with undisclosed bank accounts
Most working-age benefits to rise by only 1% for each of next three years - with welfare changes to save £3.7bn by 2015-16
From 2014-15, lifetime pension relief allowance to fall from £1.5m to £1.25m - annual allowance cut from £50,000 to £40,000
Basic state pension to rise by 2.5% next year to £110.15 a week
Child benefit to rise by 1% for two years from April 2014
Extra £1bn for roads, including upgrading A1, A30, and M25
Extra £1bn to build 100 new free schools and academies and £270m for further education colleges