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Gloomy George

With signs of economic recovery and increasing business confidence, Chancellor George Osborne might have been expected to be cock a hoop so his New Year speech surprised most commentators.

He acknowledged the recovery and said, “For the first time in a long time, there’s a real sense that Britain is on the rise”, but he also warned against complacency. The job was only half done. The deficit is still too high and we are paying £2 billion a week in interest on the National Debt. He had no magic wand to make people feel better and 2014 will be a year of hard choices. Job creation is the only way forward, to enable people to earn their way to security and peace of mind.

He recognised people want tax cuts. From April the income tax threshold will be £10,000. Council tax and fuel duty have been frozen for another year, business taxes have been cut and National Insurance for youngsters under 21 will be scrapped to encourage firms to hire more of them. The Government is investing in infrastructure projects – road and rail improvements, increased house building and fast broadband – but these measures all have to be paid for. The choice in 2014 is “to go on working through a plan that is delivering for Britain, putting us back in control of our destiny with the security and peace of mind that brings, or squander what we’ve achieved and go back to economic ruin”. 

The Chancellor sees the former as the only credible option and warns that a further £25 billion cuts will be needed over 2017-18. He thinks £12 billion should come from the welfare budget. Pensions and benefits for the over 65’s should be protected but housing benefits for the under 25’s is one of his targets. So too are those on incomes of £60,000 and still living in Council houses. He also backs tighter controls on benefits for unemployed immigrants. These choices are controversial even amongst Conservatives. Some question whether wealthy pensioners should receive winter fuel allowances and bus passes whilst benefits for the poorest are capped even tighter. 

Improving our schools so that youngsters have the skills employers need was an important item in the speech. Evidence emerged last year that our school leavers scored lower in key skill measures than their peers elsewhere. This blunts our competitive edge and has to be corrected. The Chancellor considers his policies are only means not ends in themselves. The end is not just to rescue the economy but to create a new belief and confidence in Britain. He concluded, “Let’s finish the job”. 

This was a highly political speech, challenging Labour and the Liberal Democrats to say what plans they have. Both accept the need to cut the structural deficit but will almost certainly make different cuts. The Institute of Fiscal Studies says £25 billion further cuts looks tough. The cuts suggested will not raise anything like £25 billion and NHS and education spending are likely to grow.