George Osborne's raid on middle class: 400,000 forced on to 40p income tax rate

Benefits capped, growth forecasts slashed and austerity plans extended to 2018: Chancellor breaks bad news in Autumn Statement

The Coalition Government will agree an extra £10bn of spending cuts by next June as George Osborne admitted the “age of austerity” would last for at least another six years in a downbeat mini-Budget.

All sections of society were squeezed as the Chancellor admitted he would miss his target to reduce debt as a share of national income by 2015-16. Most working-age benefits will rise by only 1 per cent over the next three years, as the Government breaks the link with inflation.

The Chancellor had little scope to pull a rabbit of his hat. And there was a sting in the tail for those on middle incomes as Mr Osborne’s aides admitted another 400,000 people will be dragged into the 40p higher income tax bracket by 2015, taking the figure to 4.2m. The small print of yesterday’s Autumn Statement showed that this group – a key Conservative target at the next election – will be £117 a year worse off by then.

Mr Osborne admitted that cutting the deficit was taking longer than expected but insisted: “Britain is on the right track.” But he pencilled in a further £4.3bn of spending cuts for 2017-18 to clear the deficit.

The credit rating agency Fitch yesterday warned that the failure of the Chancellor to hit his debt target could lead to Britain being stripped of its AAA credit rating: “In our view, missing the target weakens the credibility of the UK’s fiscal framework, which is one of the factors supporting the rating.”

Tory and Liberal Democrat MPs welcomed two pieces of good news – the 3p-a-litre rise in petrol duty due next month was scrapped; and the amount people can earn before paying income tax, due to rise to £9,205 in April, will now increase by an extra £235 to £9,440. Mr Osborne said the Government was in “touching distance” of a £10,000 threshold, the Liberal Democrats’ flagship policy.

The Liberal Democrats signed up to a further £10bn of cuts for 2015-16 in a move that will worry some of their party activists. They insisted further savings were needed to achieve the Coalition’s mission to cut the deficit.

A government-wide spending review will be completed in the first half of next year, with the Home Office (including the police), the Ministry of Defence, the Ministry of Justice and local government among those likely to come under pressure. The Liberal Democrats will not allow any more welfare cuts on top of the £3.7bn benefits squeeze announced yesterday.

A trade-off between “wealth and welfare” by the two Coalition parties was at the heart of yesterday’s statement. Key decisions were taken at a meeting at Mr Clegg’s home, where he met Mr Osborne and Danny Alexander, the Liberal Democrat Chief Treasury Secretary.

In the private talks, the Chancellor was more open to the Liberal Democrat plans for a mansion tax or higher council tax bands for expensive properties than his public rejection of a new “homes tax” suggested yesterday. But the move was vetoed by David Cameron, who feared a backlash from natural Tory supporters. The Liberal Democrats blocked Mr Osborne’s push for a total freeze in most working-age benefits, insisting on a 1 per cent rise. They also stopped his proposal to end housing benefit for most under 25-year-olds and to limit benefits for children to the first two for new claimants – measures now likely to feature in the next Tory manifesto.

Mr Clegg also vetoed the Chancellor’s plan to bring in regional pay in the public sector, but failed to prise more money out of the Treasury to relieve the burden of childcare costs.

Mr Osborne had to swallow scaled-down forecasts on growth from the Office for Budget Responsibility (OBR), the independent fiscal watchdog, but insisted this was due to the global economy rather than his cuts. Critics seized on OBR figures suggesting that the nation’s “black hole” was barely smaller than when the Coalition took office.

The Chancellor was able to announce a surprise fall in borrowing in 2012-13, but Labour accused him of a sleight of hand by including the expected £3.5bn proceeds from the sale of 4G mobile phone licences.

Labour seized on figures from the House of Commons Library suggesting that a working family with two children and an annual income of £20,000 would lose £279 from April.

Business leaders welcomed the announcement that corporation tax will be cut by 1 per cent to 21 per cent in 2014.

Glossary: Terms of austerity

Deficit The difference between what the Government collects in taxes and what it spends.

Structural deficit The part of the deficit that will not automatically disappear when the economy is growing at a normal rate.

Asset Purchase Facility coupons  A pot of money at the Bank of England which will be transferred to the Treasury.

Fiscal mandate Mr Osborne’s self-imposed borrowing and debt rules.

Automatic stabilisers State unemployment benefits that automatically rise, increasing the deficit, when the economy is weak.

Capital spending One-off government investments in physical assets (eg, schools, roads, social housing).

Current spending Wages of nurses, teachers, police and other public employees; spending on benefits.

Tax evasion Illegal tax dodging, as opposed to legal tax dodging, which is called “avoidance”.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
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: Business Development Manager / Sales - OTE £45,000

£35000 - £45000 per annum: Recruitment Genius: This company is a solutions / s...

Recruitment Genius: Sales Executive - OTE £45,000

£18000 - £45000 per annum: Recruitment Genius: A Sales Executive is required t...

Recruitment Genius: Test Development Engineer

£35000 - £40000 per annum: Recruitment Genius: Are you inspired to bring new a...

Recruitment Genius: Trainee Motor Engineer

£14000 - £18000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview