Blood, sweat and tears: no end in sight to austerity measures

George Osborne hits benefit claimants hardest - but many middle-class taxpayers will suffer too

Column LAST UPDATED AT 17:04 ON Wed 5 Dec 2012

CHANCELLOR George Osborne was forced to take the gamble of his life today in making cuts in spending the big general election issue.

It is no wonder that David Cameron has invoked the wartime spirit for the austerity measures. Because after today, it is clear Osborne can offer the public nothing more than Churchill's wartime promise of "blood, sweat and tears".

Osborne confirmed that he is having to extend by one year the austerity measures to get Britain's debt down. That means he will have to go into the next general election still trying to cut public spending, rather than offering a pre-election sweetener to the voters.

The big losers will be benefit claimants who will see their welfare benefits across a whole range of tax credits and allowances rise by only 1 per cent in the coming year, instead of by the inflation rate of about 2.5 per cent.

Iain Duncan Smith, the Social Security Secretary, sat alongside Osborne in the Chamber to show that he supports the package.

Osborne had wanted to freeze benefits, but IDS, together with Nick Clegg, the Lib Dem leader, forced Osborne to offer a slight rise, however small.

The cut got Shadow Chancellor Ed Balls hopping up and down at the unfairness of the Tory-Lib Dem coalition. He accused Osborne of offering more tax cuts for the rich while the poor suffer real-terms cuts in welfare benefits.

Balls was jeered by the Tories - but he is right. The rich, who can already look forward to receiving their tax cut from 50p in the £ to 45p from next year, will also benefit from the measure to help the poor by raising the point at which people start paying any tax on their earnings to £9,440 - because all earners will benefit from the new threshold.

So much for One Nation, said Balls in a blustering performance. "This Chancellor cannot say we are all in it together without a smirk on his face," said Balls. "This is certainly not a One Nation Government."

As The Daily Telegraph reports, it's not just the poor who are set to lose - Middle England has got it in the neck too.

The Telegraph quotes "official figures" showing the average household will be more than £1,140 worse off by 2015 mainly because an estimated 400,000 more people will be dragged into the 40p rate, due to the fact that Osborne has raised the threshold by only one per cent, not 2.7 as per the inflation rate. Those close to the threshold who are awarded an inflation-rate pay rise could find themselves having to pay more tax.

In the face of all this miserable news, Treasury briefers are claiming that Osborne has set a political trap for Labour leader Ed Miliband by challenging Labour to support the cuts.

Trap Number One comes in the New Year with a new Welfare Uprating Bill which the Chancellor has introduced to implement the real-terms cut in benefits for the next three years.

It will require a vote in the Commons probably in January. One Treasury source said: "What will Labour do? If they vote against it, they will have to say where they would raise the money from - higher taxes or higher borrowing?" For the moment, Labour are saying only that they need to study the welfare bill before deciding how to vote on it.

Trap Number Two for Ed Miliband comes with a new review of spending for deeper cuts in the months leading up to and beyond the next general election.

The current financial package ends in March, 2015 - a month before the new financial year and probably a few weeks before the General Election.

Osborne announced he is to hold a review of further deep cuts in spending over the next six months to find £10bn in savings for 2015-16. That is in addition to deep cuts already penciled in for this period - £3.6bn in more welfare cuts, £2.4bn on departmental savings and £500 million on overseas aid.

Osborne is challenging Balls to say whether Labour will vote for the cuts to make the books balance before the next general election. As the recent YouGov poll for Progress magazine showed, it is not easy for Balls and Miliband to vote against these cuts, because most people seem to buy the Cameron/Osborne argument that spending has to be reduced and cuts in unemployment benefit ARE popular with the vast majority who are still in work.

It wasn't all bad news. The Chancellor was cheered by Tory MPs when he announced he was not just postponing Labour's 3p a litre increase in fuel duty but scrapping it altogether.

Corporation Tax - the tax that some multinational companies avoid by aggressive tax avoidance techniques - is being cut to 21 per cent, which the Chancellor said was "the lowest rate of any western economy". Perhaps the likes of Starbucks, Amazon and Google, might be prepared to pay more of it in future.

Osborne insisted there could be no switch to Plan B. "Turning back now would be a disaster," he said.

The problem for Cameron, Osborne and Clegg is that by 2015, the voters may be tired with austerity and ready to buy an alternative strategy from Balls and Miliband.

The Chancellor opened his statement with the line: "It's taking time, but the British economy is healing." That was met with guffaws of laughter from the Labour benches. ·