Britain faces six years of misery
David Smith & Oakeshott, Isabel. Sunday Times, London, 27 Nov 2011: 1.
Leading forecasters are warning that Britain is on the brink of a "double-dip" recession, and the independent Office for Budget Responsibility (OBR) is set to downgrade its growth forecasts to 1% for this year and next. The expected measures on petrol
BRITAIN faces six more years of a savage squeeze on public spending, according to George Osborne, the chancellor. He will warn this week that the government has no alternative if it is to maintain the country's credit rating.
Whitehall sources say the message from Tuesday's autumn statement is that the coalition will stick to its deficitreduction plan even as the economy deteriorates. "This will be the message for the markets and it is the message for the public," said one official.
Leading forecasters are warning that Britain is on the brink of a "double-dip" recession, and the independent Office for Budget Responsibility (OBR) is set to downgrade its growth forecasts to 1% for this year and next.
But the chancellor, who is required by his own rules to eliminate the bulk of the deficit by 2016-17, will say there is no alternative to meeting those rules. The eurozone crisis underlines the need for the tough stance to persist.
In June the OBR said the structural deficit would be eliminated by
2014-15. This week it will say the target will be met only if Osborne maintains the real-terms freeze on spending until 2017.There were hopes that improvement in the public finances would allow a giveaway before the election in May 2015. The message this week will be that the pain will continue for years. A real-terms freeze on spending means deeper cuts because of higher debt-interest payments and the rising cost of unemployment.
It comes as the Organisation for Economic Co-operation and Development is set to warn tomorrow of a fresh downturn in Britain and the eurozone.
The Ernst & Young Item Club says there will be an extra 100,000 public- sector job losses as a result of the government's plans. One City firm, the Japanese-owned Daiwa Capital Markets, warns that Britain faces a "lost decade" that could "out-Japan" Japan.
While Osborne has no room for manoeuvre, he will announce measures intended to boost growth or ease the pain on voters.
These are set to include: ? A Pounds 10 billion "credit-easing" plan to get more lending to small and medium-sized firms; ? A boost to infrastructure spending, including pension fund investment, and a boost to the government's own capital budgets, paid for by reductions elsewhere; ? Scrapping swathes of health and safety legislation; ? A reduction in the scale of planned rail-fare rises; ? A freeze in petrol duty next month, paid for by a belowinflation rise in some welfare benefits.
The credit-easing plan will involve the government guaranteeing funding by the banks for lending to firms with a turnover of up to Pounds 50m. It is intended to respond to the criticism that existing initiatives such as the Project Merlin deal with the banks have left smaller firms starved of credit.
"We all know that the cost and availability of finance for smaller businesses has risen following the financial crisis," said a Treasury source.
"It's a problem people have been trying to solve since 2008, which is why these new schemes are much more radical than anything that has gone before."
The expected measures on petrol duties and rail fares, intended to ease the burden on families, follow sharp rises in the past year. Osborne scrapped the duty rise planned for last April and instead announced a reduction. Duties were due to rise by 3p a litre in January at a time of record petrol prices.
Rail fares were due to rise in January by an average of 8.2%: inflation plus 3%. Instead, Osborne has intervened to limit the rise to inflation plus 1%.
The decision to reduce rail fare increases will cost Pounds 104m next year. Fares will still rise in 2013 by 3% more than the retail prices index. The Treasury is also providing Transport for London with more than Pounds 130m so increases in rail fares in the capital can be capped at 1% above inflation, as opposed to the 2% above inflation planned.
Osborne will unveil a boost to infrastructure spending, including Pounds 600m for new "free" schools over three years as part of a multi- billion-pound programme. The government will switch some current spending to capital projects.
It will also unveil a deal with pension funds and insurance companies to put investment into Britain's infrastructure, in return for a stream of income from road tolls and other charges. Sources say tens of billions could be raised in this way. The health and safety shake- up comes as firms warn that accidents in the workplace cost them Pounds 14 billion a year. Businesses are often forced to make payouts even if a worker has behaved irresponsibly.
The employment minister, Chris Grayling, is expected to announce plans to axe regulations not supported by scientific evidence.
Under the new measures the government will be able to overturn unreasonable rulings made by health and safety inspectors. Grayling will this week travel to Brussels to lobby EU officials against introducing more health and safety legislation when they review the law in 2013. In an interview with The Sunday Times, he warned that Brussels "could move in the wrong direction" unless the UK takes pre- emptive action. About half of health and safety regulations affecting the UK emanate from Brussels. Workplace accident payouts to be slashed, page 18 One out, all out? The tension rises, Focus, pages 24-25 Osborne's Pounds 10bn for small firms,
Cameron's rating slumps
The prime minister's approval rating has plunged to its lowest level since the summer amid mounting concern over the state of the economy.
A YouGov poll for The Sunday Times puts David Cameron's net rating at minus 14 points, his worst score since August. The poll also gives Labour a nine-point lead over the Tories, with 43% backing Ed Miliband's party compared with 34% for the Conservatives.
The poll found widespread gloom about the economy, with 50% of those questioned describing the situation as "bad" and more than one third as "very bad".
Fewer than a third of people say ministers are handling the economy well, with respondents fairly evenly split on whether they should stick to reducing the deficit or focus on growth.
Road tolls to pay for new projects