The Chancellor admitted to MPs that the economic growth target is being downgraded for this year to 1.7 per cent – down from the 2.1 per cent forecast in November and borrowing will be at least £50 billion more than planned over the next five years.
Investment bank Barclays Capital said of Mr Osborne’s financial projections that “there is a significant risk that in the medium term the deficit does not fall by as much as the Government is projecting.”
It warned: “In that case, the Chancellor would face an unwelcome choice between implementing more tax hikes and spending cuts to keep the deficit reduction plan on track, or watering down the plan to support the economy.”
The warning came as the country is about to enter the most severe stage of the Government’s accelerated deficit reduction with at least £32 billion of public spending about to be taken out of the economy.
Mr Osborne said income tax cuts worth £1.2 billion and his own pro-growth schemes will eventually boost the economy this year and next. But a squeeze in allowances from 2013 is due to claw back £1 billion a year and a new carbon tax will push up domestic fuel bills by £1.5 billion from 2013.
Labour leader Ed Miliband accused him of a “classic Tory con” because the tax cuts were dwarfed by the VAT rise to 20 per cent and the impact of spending cuts on families.
The Institute for Fiscal Studies estimates real household incomes will have fallen by 1.6 per cent in 2008-2011, the biggest three-year drop since 1980-1983.
Key measures of Mr Osborne’s Budget include:
A new Enterprise Zone for London with 20 more being set up in regions experiencing slower growth. DUP MP Sammy Wilson said in the House of Commons that, in reality, this amounts to no more than £4 million per zone;
Corporation tax drops by an extra penny, undercutting France and Germany, and is to fall to 23 per cent by 2014;
The qualifying age for the state pension is expected to rise even higher than the current plan for retiring at 68 from 2046. Public sector workers will pay higher National Insurance contributions to help fund their pensions.
From 2013, the Treasury is also to change the annual uprating of tax allowances and thresholds to link them to the CPI inflation measure rather than the higher – and more accurate – Retail Price Index which is usually 1 per cent higher, thus raising £1 billion for the Treasury in time for the election. In its first year, the change will give the Treasury £105 million, but the effect will multiply every year and by 2015 the state will take in £1 billion in extra income tax.
Trade union leaders were unimpressed by the Budget.
TUC General Secretary Brendan Barber said: “Today has been a no-change budget. The Chancellor has been forced to reveal the evidence that his policies aren’t working but has not had the courage to change them. Today’s measures do nothing to end the basic error of imposing deep, rapid and unfair spending cuts on an economy where unemployment is rising and growth faltering.
“While there are some welcome measures on funding for apprenticeships and much needed relief on fuel duty, most of today is about taking us back to the 1980s with deregulation gimmicks, hand-outs to big business and a deterioration of working conditions that failed to deliver jobs or growth then and won’t today.
“Overall, there was little in the way of help for hard pressed ordinary people fearful for their jobs and reeling from inflation driven by the VAT increase. And for the young unemployed the best the Chancellor had to offer was cut-price unpaid work experience.
“Now workers learn that they are set for stealth increases in their tax every year as the Chancellor switches tax rate increases to CPI in the same way that he has already hit pensions and benefits.”
Unite general secretary Len McCluskey said: ”George Osborne just re-arranged the furniture, when Britain needed a plan B. Growth is shrinking, unemployment is on the rise, wages are falling or stagnant and this government is creating a lost generation of young people. No one should be fooled by this budget, it’s a mirage from the architect of the most devastating cuts to jobs and services in generations.
What is on offer is tax cuts and deregulation for corporations, whilst attacking workers’ rights in small companies. This budget has not actually created any jobs. The tax avoidance measures to claw back £1bn of taxes is a drop in the ocean compared with the £30bn of taxes lost through avoidance every year. If you are struggling to make ends meet, there is very little in this budget to help you.”
Construction industry union UCATT said the £250 million shared equity scheme for homebuyers is “a missed opportunity to kick-start the construction industry”.
It said: “If the Government is serious about helping unemployed construction workers back into work and restoring confidence in the industry, the funding would have been better invested in building new social housing for rent. This would have better guaranteed increased job opportunities. New social housing developments could also have included the requirement for companies to undertake compulsory apprentice training.
“While the priority must be to kick-start the construction industry and create jobs, funding would have been better spent on social housing, where there is a chronic need for new homes. By concentrating on the private sector the Government is repeating the problem of overheating the property market, which then crashes and damages the economy.”
