George Osborne: Public sector pay rises capped at 1%
Chancellor George Osborne has announced public sector pay rises are to be capped at 1% for two years, in his update on the state of the economy.
Public sector employment is also forecast to fall by around 710,000 up to 2016 - up from forecasts of 400,000.
UK economic growth will be lower, and borrowing higher, than was predicted during the Budget in March.
A planned 3p-a-litre rise in fuel duty in January has been cancelled and a further rise in August limited.
Outlining his plans to MPs, based on economic forecasts from the independent Office for Budget Responsibility (OBR), Mr Osborne told MPs the UK economy was now forecast to grow by 0.9% this year - compared with 1.7% forecast in March and 0.7% next year, down from the 2.5% forecast in March.
He said the figures forecast by the OBR were down to the eurozone crisis, a hike in global commodity prices and a new assessment that the UK＇s economic boom was bigger and the bust was deeper than previously believed.
Borrowing was falling and debt would come down but "not as quickly as we wished". In 2011-12 it is now forecast at £127bn - up from £122bn forecast in the Budget and overall, over five years, is expecting to borrow £111bn more.
But he said, because debt interest payments had dropped, the government would be spending £22bn less over this Parliament on them than predicted.
The chancellor conceded he would not be able to meet his aim of eliminating the structural deficit and to see national debt falling by 2014/15 - a year ahead of target - because "that headroom has now disappeared". The structural deficit is now predicted to be eliminated by 2015-16, pushing it beyond the next general election.
While the independent Office for Budget Responsibility had not forecast a double dip recession - as the economic think tank the OECD did on Monday - the chancellor warned that if the rest of Europe went into recession, "it may prove hard to avoid one here".
But he said the government would meet its budget rules and would "see Britain through this debt storm".
State pension age
Among money-saving measures outlined by the chancellor were a 1% cap on public sector pay for two years, once the current two-year pay freeze ends from 2013 - saying the government "cannot afford the 2% rise assumed by some government departments thereafter". That would save more than £1bn by 2014-15, he said.
Plans to raise the state pension age from 66 to 67 would be brought forward by up to ten years to 2026, to save £59bn in the long term.
The child element of the working tax credit will be uprated in line with inflation, but other tax credit increases will be restricted.
But there will be a £5.30 increase in the basic state pension to £107.45, in line with the 5.2% inflation rise in September.
Pensioners receiving pension credit will also benefit from an increase worth £5.35. and "working age" benefits would also go up in line with the higher inflation figure - contrary to earlier reports - which he said would be a "significant boost to the incomes of the poorest".
Other announcements included an increase in the bank levy to 0.088% from 1 January and a 50% discount for social housing tenants who want to buy their own home - the proceeds of which would go towards building new affordable homes.
Mr Osborne also went through a series of schemes aimed at boosting the UK＇s flagging economy.
These include a £20bn national loan guarantee scheme for small businesses, a £40bn "credit easing" scheme to underwrite bank loans to small businesses, plans for £5bn spending on big infrastructure projects over three years - with 35 road and rail schemes identified, £400m fund to kick start housing projects, a £1bn regional growth fund for England, £250m help for energy intensive industries to alleviate cost of EU carbon trading, reduced corporate tax rate and an extended business rate holiday for small businesses and an extra £1.2bn for schools.
Rail fares, and fares for the Tube and London buses, will be capped at inflation plus 1% while the fuel duty rise for January has been axed and a planned 5p rise in August limited to 3p.
Overseas aid will be adjusted as it is currently on track to surpass the government＇s commitment to raise it to 0.7% of GDP, which Mr Osborne said could not be justified in the current circumstances.
But for Labour, shadow chancellor Ed Balls said the figures showed the "truly colossal failure of the chancellor＇s plan".
"Let＇s be clear what the OBR has told us today: Growth flatlining, down this year, next year and the year after. Unemployment rising, well over £100bn more borrowing than the chancellor planned a year ago - more borrowing that the plan which the chancellor inherited at the last general election.
"As a result his economic and fiscal strategy is in tatters."
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