Autumn Statement 2013: George Osborne forces Labour into a fiscal straitjacket

 

Political Editor

George Osborne has set a political trap for Labour by challenging the party to sign up to tough fiscal rules that would mean billions of pounds of new spending cuts after the 2015 general election.

In a highly political Autumn Statement, the Chancellor announced that Parliament will vote on a new “charter for budget responsibility” before the election. His aim is to set the terms of the election battle to give maximum advantage to the Conservatives, who will pledge to run a budget surplus once the annual deficit has been wiped out in 2018-19. 

The rules will say that any annual surplus should be used to pay off the remaining stock of debt. “This time we will fix the roof when the sun is shining,” Mr Osborne told the Commons.

But the Chancellor’s plans for a “responsible recovery for all” were dealt a blow when the independent Office for Budget Responsibility (OBR) warned that house prices will jump by 3.2 per cent this year, 5.2 per cent next year and 7.2 per cent in 2015, meaning that it expects homes to cost 10 per cent more by 2018 than it previously predicted. Labour and some Liberal Democrats said that brought into question the merits of the Government’s Help to Buy scheme which guarantees 95 per cent mortgages, but which critics claim could inflate another housing bubble. Labour warned that home-buyers would be “back to square one” if prices rose sharply and they were unable to get a mortgage. But Mr Osborne said the OBR’s new forecasts still left house prices 3.1 per cent lower than their 2007 peak.

In a statement that contained few surprises, the Chancellor confirmed limited “giveways”, including a tax break for married couples; free school meals for all five- to seven-year-olds and the scrapping of a 2p rise in fuel duty due next September.

He trumpeted higher than expected growth and lower borrowing forecasts. Trailing the Conservatives’ election campaign, he said: “Britain’s economic plan is working. But the job is not done. We need to secure the economy for the long term.”

The Chancellor’s election gambit creates a huge dilemma for Ed Miliband and Ed Balls, the shadow Chancellor, who was drowned out by Tory MPs when he responded to the statement. Labour has pledged to stick to the Coalition’s day-to-day spending plans for the first year after the election but intends to borrow more to fund building projects such as a huge housing programme.

The Tories will brand Labour irresponsible if it does not vote for the new charter. But Mr Miliband is determined to “be bold and be different”. His allies fear the public may stick with the Tories if Labour appears to promise more of the same austerity.

Labour hit back, with Mr Balls accusing Mr Osborne of “playing politics” and vowing that Labour would not be deflected from fighting the election on the “cost of living crisis”. Mr Balls said the figures published on Thursday showed that working people in 2015 would be £1,700 worse off on average than they were when David Cameron became Prime Minister, up from the previous estimate of £1,600. He also said that wages would fall by 5.8 per cent over the five-year term of this parliament. Labour will hammer home the message in its election campaign, accusing the Tories of being “out of touch” and failing to understand the huge problems that ordinary people face because wages have lagged behind inflation – a trend that Mr Osborne said would finally be reversed next year.

The Liberal Democrats also face a difficult decision over Mr Osborne’s opening election shot, with some party figures anxious to avoid a commitment to more “Tory cuts”.

Nick Clegg has signed up to the idea of a new “fiscal framework” which uses budget surpluses in good years to bring down debt. But he will part company with the Tories by insisting that the deficit should be cleared partly by higher taxes – such as a mansion tax on homes worth more than £2m– rather than solely via cuts as the Tories propose.

Vince Cable, the Business Secretary, said last night: “The Liberal Democrats are an independent party. We will go into the election with our own identity, equidistant from the other two parties and with a completely different set of policies. We will not be locked into a Tory agenda.”

Mr Osborne also set out plans to impose a cap on welfare spending for the first time – and will again challenge Labour during the election campaign to support it. Jobseekers’ allowance, housing benefit for the unemployed and the basic state pension will be exempt. But the move could open the door for pensioners’ perks such as winter fuel allowances, free bus travel and TV licences to be pared back.

The squeeze on public sector pay will continue, with annual rises limited to 1 per cent. But in a pilot scheme, some government organisations will be given the freedom to make the trade-off between pay and jobs.

One Treasury source said Mr Osborne believed Mr Balls would be exposed if Labour voted against the new fiscal rules.

But independent think-tanks raised Labour’s hopes of making living standards the key election issue. Paul Johnson, director of the Institute for Fiscal Studies, said: “We’ve had the biggest recession we’ve had in 100 years … It looks like in 2015 people will be no better off than they were in 2001.”

Matthew Whittaker, senior economist at the Resolution Foundation, said: “The much-delayed recovery in earnings is being delayed still further. Although average wages are forecast to outpace inflation for the first time in six years in 2014, there’s a lot of ground to make up. For typical workers, pre-recession pay levels are unlikely to return before the end of the decade.”

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Web Development Manager

£20000 - £25000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Recruitment Genius: Service and Installation Engineer

£22000 - £28000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Recruitment Genius: SEO / Outreach Executive

£20000 - £23000 per annum: Recruitment Genius: Our client is a global marketin...

Recruitment Genius: Junior Estimator

£17000 - £18000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?