Another £3bn of public spending cuts will be announced by George Osborne as he warns that the job of clearing the nation’s deficit is far from finished.
The Chancellor has angered some cabinet colleagues by ordering them to find a new round of savings totalling £1bn a year over the next three years to help him balance his books in today’s Autumn Statement.
A Treasury source said: “The Autumn Statement will show how our long-term economic plan is working. But the job isn’t done. We will go on taking difficult decisions needed to secure a responsible recovery for all.”
Behind the scenes, tensions between the Conservatives and Liberal Democrats erupted in public on the eve of statement. The two parties – which have been broadly united on economic strategy since the Coalition was formed – both claimed they were responsible for securing the recovery. They also squabbled over Nick Clegg’s plans to bring in free school meals for all five to seven-year-olds, after the need to build many new school kitchens and dining rooms created a £150m “black hole”.
Mr Osborne will confirm that the Office for Budget Responsibility has increased its growth forecasts for this year and next as the recovery takes hold. He is expected to:
* limit the rise in business rates next year, with small stores exempt for another year;
* confirm plans to reward marriage in the tax system by 2015;
* exempt employers from paying national insurance for workers under the age of 21;
* scrap a planned increase in fuel duty due to come in next September;
* announce an extra £270m for science to boost quantum technology, which turns quantum physics into practical applications.
The Chancellor will claim that his previous cuts in corporation tax will generate more revenue over time than they cost as they help to boost growth. A Treasury study suggests that, in 20 years, gross domestic product will increase by between 0.6 and 0.8 per cent (£10bn to £12bn at today’s prices) as a result.
The emergency round of spending cuts, revealed by The Independent on Monday, is needed to fund giveaways such as the marriage tax allowance and school meals extension. It will put pressure on the Whitehall departments whose budgets are not ring-fenced.
The Treasury revealed last night that the £1bn a year of cuts will not affect health, schools, overseas aid, local government, HM Revenue & Customs or the security services. Mr Osborne, who has written to cabinet colleagues about his new squeeze, will “lock in” a £1bn underspend in the current financial year by ordering ministers to repeat it over the next two years.
The Ministry of Defence will be given special permission to carry over an £800m undershoot in the current year. But departments facing more cuts in day-to-day spending over the next two years include the Home Office, Work and Pensions, Justice, Business, Transport, Communities, Culture and the Foreign Office. Building projects will not be affected.
Mr Clegg’s £635m plan to extend free school meals to all infant school children from next September appeared to underestimate the need for more kitchens and dining rooms. The Treasury has stumped up £70m towards the building work and Michael Gove, the Education Secretary, has found £80m from his department’s maintenance budget. Mr Gove is believed to be unhappy about this “raid” but Mr Clegg was backed by Mr Cameron.
Liberal Democrats angrily accused Gove aides of falsely claiming that funds from the Department for Education (DfE) for providing extra school places would be used for the free meals plan. A senior Liberal Democrat source said: “What you have seen from DfE is them going rogue and a slight bitterness at the fact that this policy wasn’t invented there. But they are completely out of step with the rest of government and they need to come in line.”
Sajid Javid, the Conservative Financial Secretary to the Treasury, said: “Only the Conservatives will take the difficult decisions necessary to secure the economy for the future.”
Mr Clegg hit back when he stood in for Mr Cameron at Prime Minister’s Questions, saying: “Without the Liberal Democrats there wouldn’t be a recovery.”
Labour will unveil a “cost of living bombshell” poster claiming that working people are £1,600 a year worse off under Mr Cameron, an echo of the Tories’ “tax bombshell” poster at the 1992 election.
Chief Treasury Secretary, said: “After three damaging years of flatlining, prices are still rising faster than wages, which is why for millions of people there is still no recovery at all. What we need from the autumn statement is a long-term plan to tackle the cost of living crisis and earn our way to higher living standards for all, not just a few at the top.”