'Stony-faced' Osborne forced to defend austerity Budget

Published by Jon Land for 24dash.com in Central Government

Chancellor George Osborne defended the Budget as "tough but fair" today as he accused the previous Labour government of leaving the economy in a "massive mess".

Mr Osborne said everyone was being asked to pay a contribution in order to help curb the deficit.

"The damage to the economy, the people losing their jobs, will come if we do not sort out our problems in this country, and the welfare bills have got out of control," he told GMTV.

"The hole in the public finances was so great and the debts were so large, and people at home know, if you have got a debt problem, you have got to deal with it."

Mr Osborne's remarks were made as Treasury Chief Secretary Danny Alexander defended as "unavoidable" a rise in VAT to 20% announced in the Budget after it exposed strains in the coalition with the Conservatives.

Mr Osborne said the situation was an "emergency" and he believed his Budget could prevent Britain heading down "the road to ruin".

"When you turn on the news and you can see what is happening in Spain, in Italy, in Greece and other countries that are having to take pretty drastic steps to deal with their debts, I don't want Britain to be in that place.

"I want us to take pre-emptive action. It is an emergency and that's why we needed an emergency budget."

He added: "The biggest risk out there are the debts, and if we don't deal with the debts then I'm afraid the country will be on the road to ruin and I'm not prepared to see that happen."

The Chancellor added: "I'm sure if we get this right we'll get the jobs, we'll get the growth, we'll get the prosperity."

Mr Alexander said the VAT move - which his party vigorously opposed in the General Election campaign - was the only alternative to still deeper spending cuts.

Challenged on GMTV over the increase, Mr Osborne said: "When we got into Government, the hole in the budget was bigger than we thought.

"We asked an independent expert to look at it and they agreed, and also around Europe, this debt problem is getting worse and worse, people see it on their telly, they see it in Greece, they see it in Spain..."

Mr Osborne said he did not want to take measures such as raising VAT or freezing child benefit.

"It is not because I want to do these things, it is because this country faces a very, very serious debt problem," he said.

He added: "The Labour Party were in charge of this country for 13 years and they left a massive mess for the economy, a massive mess with the debt."

Mr Osborne's remarks come after he announced an emergency package of tax increases and spending cuts yesterday on a scale unseen in decades.

A massive £11 billion benefits squeeze was also included in an harsh austerity package which he said would clear the structural deficit by the time of the next general election in 2015.

More pain will follow in the autumn spending review when Government departments whose budgets are not ring-fenced face cuts in the order of 25%, he warned.

He sought to soften the blow by restoring the state pension link to earnings from next year, raising income tax allowances for basic rate payers and a £2 billion boost for poor families.

However the VAT measure sparked deep unease among Liberal Democrats as Labour accused them of acting as "fig leaves" for a Budget which would still hit the most vulnerable hardest.

Prime Minister David Cameron and Liberal Democrat Deputy PM Nick Clegg will appear on television together today to show a united front.

But Colchester Lib Dem MP Bob Russell issued a stark warning to the leadership, declaring: "I can't see myself at the moment voting for the Budget."

He said he had told voters less than 50 days ago that he was opposed to a VAT rise - which was predicted as a potential "Tory bombshell" in a major party poster campaign.

Other left-wing Lib Dems admitted "unease" - including among ministers - but played down the prospect of a revolt, insisting MPs had accepted the need for stark action to cut the deficit.

"It is not a joyful Budget but looking back it was the right thing," said Tim Farron - pointing to the inclusion of Lib Dem ideas on income tax thresholds and capital gains tax.

Mr Alexander, who was applauded when he addressed a meeting of the party's MPs after the statement, denied misleading voters.

"What we actually said in the election was that we would seek to reduce the deficit through spending but only if, on the grounds of fairness, we needed additional tax rises would we seek one.

"And on VAT, we have a choice: if the structural deficit is £12 billion larger than the previous government told us - do we fill that with yet more spending cuts or do we choose a tax measure?

"We want to see income tax thresholds rise to help with incentives to work. That means VAT was the unavoidable choice," he told BBC2's Newsnight.

Acting Labour leader Harriet Harman had sought to exploit potential divisions within the coalition when she responded to the Budget in the Commons.

"How could they support everything they fought against? How could they let down everyone who voted for them? How could they let the Tories exploit them?" she demanded.

"This is a Tory Budget that will throw people out of work, that will hold back economic growth and will harm vital public services."

Mr Osborne said that, having inherited from Labour the largest budget deficit in Europe bar Ireland, the new Conservative-Liberal Democrat coalition had been forced to take drastic action.

"This Budget is needed to deal with our country's debts. This Budget is needed to give confidence to our economy. This is the unavoidable Budget," he said.

Child benefit will be frozen for three years, tax credits cut for families on more than £40,000, housing benefit capped and disability living allowance claimants face a new medical assessment.

Future benefit increases will be linked to a lower measure of inflation, public sector pay frozen for two years for those earning £21,000-plus and banks face a £2 billion-a-year levy.

Corporation tax is to be cut from 28p to 24p over the course of the Parliament and capital gains tax on non-business assets raised - but only to 28p, lower than anticipated.

Alcohol, tobacco and fuel were spared an immediate squeeze but Mr Osborne warned of fresh financial measures in the autumn to tackle binge and underage drinking.

A spending review - to be announced on October 20 - will cut departmental spending by a further £17 billion on top of the £44 billion planned under Labour.

British sources insisted last night that there was no dispute with the US over the decision to accelerate the austerity measures - following a phone call between Mr Cameron and Barack Obama.

The Prime Minister and President were said to be "on the same page" over the strategy ahead of a summit of G20 leaders in Canada this weekend.

Mr Obama wrote to world leaders last week expressing concerns that withdrawing fiscal stimulus too quickly could damage fragile recovery and spark a fresh recession.

Shadow Chancellor Alistair Darling said the Government was taking a "huge risk" by cutting public spending so quickly.

"I'm very concerned, and I'm not the only one - there are a number of commentators and others who are extremely concerned that this Government is taking a risk," he told the BBC Radio 4 Today programme.

"This is not pain-free. Get this wrong and the consequences could be dire for many, many people and businesses in this country.

"Also, they announced a whole screed of stuff yesterday and, as the days go by, I suspect some of the small print will reveal one or two horrors that aren't immediately obvious.

"But also, with a coalition Government and a flaky set of partners like the Liberal Democrats, I just wonder whether they will be able to deliver some of this stuff."

Mr Osborne, who looked stony-faced as he was played angry and anxious messages from GMTV viewers about his Budget announcements, defended the decision to freeze child benefit.

"I didn't want to get rid of it. Some people were telling me 'abolish child benefit'," he said.

"I care about helping mothers who receive that benefit. For many people it's the one thing they get without asking.

"Instead of abolishing it I've frozen it, which keeps child benefit, and means hopefully in a couple of years' time we'll be able to increase it."

The decision to cap housing benefit was simply because the country could not afford big bills any more, Mr Osborne said, adding that working people were paying for some families to receive more than £100,000 per year.

"That's not acceptable any more. We can't afford it any more. And we have got to take steps to control the costs of welfare to get people off those out-of-work benefits into work, to get this economy moving again."

Mr Osborne said the decision to freeze public sector pay for those earning more than £21,000 would save jobs.

"We know, in other parts of our economy and other private parts of the economy, if you've frozen pay you've been able to protect jobs."

Mr Osborne told BBC Breakfast: "Everyone in our society is having to make a contribution to paying off this national debt which we have inherited.

"We have only been in office for seven or so weeks but we have inherited a massive set of debts, the worst in Europe, one of the worst set of debts in the world, and everyone in our society has had to make a contribution.

"But the total package I announced yesterday hits the rich hardest and I have tried to be as fair as possible.

"I have said 'Look, everyone has got to make a contribution', but the rich in society are going to pay more as a proportion of their income as well as in absolute cash terms.

"I think that is the right and the fair approach because I wanted this Budget to be tough but I also wanted it to be fair."

Mr Osborne insisted there was a "democratic mandate" for the Budget.

He said the issue about whether there needed to be further and faster action on the deficit was aired throughout the election campaign and "both the Conservative Party and the Liberal Democrats made the argument that it needed to happen".

"We were not thinking seven or eight weeks ago we are definitely going to go ahead with VAT. We wanted to keep options open, which is why we didn't rule it out, and the reason you kept asking that question was because we weren't ruling it out," he told BBC Radio 4's Today programme.

"And it was only when we saw the public finance and we got the independent assessment of the structural deficit that we decided we had to go ahead with the VAT rise."

He said both he and the Lib Dems had set out plans to tackle tax credits before the election.

Mr Osborne went on: "The issue was aired in the general election and I think the fact we have now got two parties working together in the national interest with a mandate to do this has enormously strengthened my hand as a Chancellor trying to make sure the country can live within its means.

"I think there is a democratic mandate for what we've done and I think the country understands that when you've got a debt problem you've got to get on and deal with it."

The Chancellor also portrayed the choice in front of the country as between cuts in welfare and cuts in public spending, saying that departments would not have to reduce expenditure by the planned 25% if there were further welfare savings identified.

"If over the coming couple of months we can find further savings in the welfare budget, then we can bring that 25% number down," he said.

"In the end, that is the trade-off not just between departments but also between the very large welfare bill and the departmental expenditure bill.

"That's why we are having this big public engagement through the spending review process so that as a country we can come to that decision collectively."

Mr Darling said there was no doubt jobs would go as a result of Mr Osborne's Budget plans.

"If you cut public expenditure by about a quarter, the only way you save that sort of money is through wages.

"We know about the pay freeze, we know about some of the other changes they are making but jobs will go, there's no doubt about that.

"It isn't just the public sector because a lot of private sector firms depend upon the public sector for contracts, for selling goods and services."

Mr Darling said: "Everybody knows we have got to get borrowing down. I wanted to halve the borrowing over a four-year period, but if you go further and faster than that, the risk is you end up derailing the recovery.

"We are already seeing the problems emerging in continental Europe where other countries are doing the same as the Tories and Liberals here.

"The risk is you suppress demand, you don't get growth, you get more people losing their jobs, living standards fall and you don't even repay the very borrowing you want to."

Asked on BBC Breakfast if he would have raised VAT if he was still chancellor, Mr Darling avoided giving a straight answer but said he had chosen to plan a National Insurance rise instead which would not have hit pensioners and those earning less than £20,000.

"I made my choice," he said.

Asked if he hoped Mr Osborne's plans would work, despite his doubts, Mr Darling said: "Of course, we have all got to hope that it works but it's taking a hell of a gamble."

Mr Osborne told Sky News: "What I want people to do is believe in the future of this country, to believe that we can now invest in this country, set up your own small business, go to work with confidence that the big problem facing the economy - the debt crisis - is under control and we have got a plan to deal with it, and believe in the future prosperity of this country."

The Chancellor said his Liberal Democrat Government colleagues had been "incredibly supportive" of his decisions - including the VAT hike, which they bitterly opposed during the election campaign.

He said: "Both the Liberal Democrats and the Conservative Party are working together in the national interest to deal with this situation we inherited.

"We are not the ones who created this enormous debt problem, but we are the ones elected by the country to deal with it and deal with it in a decisive and tough way, but also a fair way, and that's exactly what we have done."

Mr Osborne defended his decision to raise VAT: "I had a choice. It was either VAT or income tax going up on low and middle earners - because the top rate has already gone up to 50p - or a big hike in National Insurance, which would have put people out of work.

"So I thought VAT was the best instrument available to me to increase the tax take.

"I didn't come into politics to increase taxes, but I came into politics to do the right thing for my country."