'Don't blame me... blame Gordon': Osborne attacks Labour 'snipers' as he warns everyone will pay for his 'bloodbath' Budget

Osborne insists economy cuts are 'tough but fair'

FTSE down 40 points to 5207 on opening

Two-year pay freeze for public sector workers earning over £21,000

Child benefit frozen for three years and tax credits cut

Corporation tax cut from 28% to 24% over four years

Capital Gains Tax hiked to 28% for top-rate taxpayers

Income tax threshold raised £1,000 to £7,495

Pension link to earnings restored or 2.5% rise from next April

Whistlestop tour: George Osborne did a series of interviews today to defend his emergency budget

George Osborne today revealed the agonising decisions behind his 'bloodbath' emergency Budget as he faced a backlash from ordinary families stung by his tax hikes.

The Chancellor insisted that he had been forced to raise VAT and freeze child benefit because of the 'massive mess' the country's finances had been left in by Labour.

Millions of middle-class families will bear the brunt of his emergency Budget, losing tax credits, facing a three-year child benefit freeze and paying £500 a year more in VAT.

But Mr Osborne today defended his decision to slash £11 billion from the annual welfare budget and said he had been left with no choice but to take 'tough but fair' decisions.

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

And Mr Osborne said it would be better if Labour could come up with something constructive instead of 'sniping from the sidelines'.

'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 said.

'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.'

The Chancellor was forced to listen as he was played angry messages by GMTV viewers, worried by 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.'

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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'

The FTSE was down 40 points to 5207 on opening. But the drop was blamed on losses on the Dow Jones after weak US home sale figures added to nerves about the recovery.

The axeman cometh: Chancellor Osborne grasps his 19th-century predecessor William Gladstone's battered Budget case as he heads to the Commons

Savage: The Chancellor delivering his first Budget with Nick Clegg and David Cameron seated behind him

Wink and a prayer? George Osborne appears to wink at David Cameron as he sits down

Earlier shadow chancellor Alistair Darling sounded a warning on the emergency budget.

Speaking on the Today programme he said: 'This government is taking a risk. This is not pain free - get this wrong and the consequences could be dire for many people and businesses.

'With a coalition government I just wonder if they will be able to deliver.

'The problem is whether or not by taking so much more money out of the economy you risk damaging growth.'

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.'

In the most brutal Budget for 30 years, Chancellor Osborne froze public sector pay for two years and set out plans to claw back £120billion in spending cuts and tax rises.

Such ‘tough but fair’ action over the next five years was unavoidable after the calamity in the public finances left behind by the last government, he said.

Anyone earning more than £49,700 will be £1,600 a year worse off thanks to tax rises which will reach £29billion a year by 2014.

And 700,000 workers could be dragged into the higher rate of income tax by next year after the Chancellor announced a three-year freeze on thresholds.

Within hours of Mr Osborne sitting down, the ratings agency Fitch said the Budget would ‘materially strengthen confidence’ in Britain’s public finances and protect its gold-plated AAA credit rating.

And Angel Gurria, secretary general of the Organisation for Economic Co- operation and Development, described the Budget as courageous, adding: ‘It provides the necessary degree of fiscal consolidation over the coming years to restore the public finances to a sustainable path, while still supporting recovery.’

Setting out what the Treasury called the steepest programme of fiscal retrenchment ever seen in peacetime Britain, Mr Osborne vowed to balance Britain’s books within five years.

He promised daunting reductions of 25 per cent in all areas of government spending except health and overseas aid to drag the country back into the black – a target many will regard as unachievable.

'BETRAYED' LIBDEMS THREATEN REVOLT

Liberal Democrat MPs are threatening to revolt over the Budget amid accusations that they had ‘betrayed’ voters.

A crisis meeting of the party was called in the House of Commons last night so that MPs could air their grievances over the VAT hike and proposed spending cuts.

A briefing from Danny Alexander, Chief Secretary to the Treasury, failed to convince some of the Lib Dems over the more punitive Budget measures.

They are angry because during the election Nick Clegg launched a poster campaign warning against a ‘Tory VAT bombshell’.

Alistair Darling, the Shadow Chancellor, is expected to make a speech today in which he will try to encourage worried Lib Dem MPs into a mutiny.

Bob Russell, a left-leaning Lib Dem MP, warned he could rebel.

He said he was ‘unhappy’ with a rise in VAT as it hit the poor disproportionately more.

Colleague Tim Farron said he was also uncomfortable with it. Deputy leader Simon Hughes admitted the rise was the ‘less preferred’ option but insisted the Budget reflected Lib Dem priorities.

A source close to the Deputy Prime Minister admitted Lib Dems were bracing themselves to be the ‘whipping boys’.

Mr Clegg emailed party members saying there had been ‘no choice’ other than to ‘clear up the financial mess that Labour left us’.

He added he had softened what would have been an even harsher Budget.

He promised daunting reductions of 25 per cent in all areas of government spending except health and overseas aid to drag the country back into the black – a target many will regard as unachievable.

The degree of pain being inflicted to prevent what Mr Osborne called a ‘catastrophic collapse’ in international confidence in Britain will put the coalition under severe strain.

Many Liberal Democrat MPs are privately horrified at the rise in VAT from 17.5 per cent to 20 per cent taking effect from next year, having campaigned against the idea in the general election.

And ministers face a pitched battle with militant union leaders, who have amassed a £25million war chest to fight attempts to rein in the bloated public sector.

After being insulated from the recession by Labour, 6million state employees now face the same pay freezes and pension cuts as their private sector counterparts.

Only those earning £21,000 or less will escape the two-year pay freeze across the public sector.

And Mr Osborne confirmed a review of gold-plated public sector pension funds, to be headed by ex-Labour Cabinet minister John Hutton, which is expected to mean state workers having to contribute far more of their salaries to retirement funds.

The scale of the rebalancing of the economy from the public to the private sector envisaged by Mr Osborne is immense – and implies hundreds of thousands of public sector jobs will go.

The tough decisions on where the axe will fall will come in a comprehensive spending review to report in the autumn.

To boost the private sector, corporation tax will fall from 28 per cent to 24 per cent over the next four years, the lowest rate of any major economy.

The small companies’ tax rate will be slashed to 20 per cent.

The Chancellor promised his nervous coalition partners that he would offer special protection for pensioners and poorer children.

He announced a restoration of the link between earnings and the state pension – broken by Margaret Thatcher – from next year.

And he promised a £150-a-year boost for those still receiving child tax credit from 2011, costing £2billion.

'Tough but fair': George Osborne outside No11. He is the last Chancellor to use Gladstone's battered briefcase

Mr Osborne also announced a £1,000 increase in the basic rate income tax threshold, lifting almost one million lower earners out of tax altogether.

In a message to Conservative supporters, David Cameron acknowledged the Budget could cost the Government support.

‘Will it cost our coalition some popularity? Possibly,’ he said.

‘But is this the right thing to do – for the health of our economy, for the poorest in our society, for the future of our country? I passionately believe it is.’

Your tax at a glance

These tables show how tax and National Insurance changes announced for April 2011 will affect your income.

The income tax personal allowance will rise by £1,000 to £7,475 cutting bills for lower earners.

Those on bigger incomes won’t benefit because of a cut in the higher rate tax threshold.

Child tax credit is being removed for households with incomes between £40,000 and £58,000.

Their income will fall by more than those on £75,000, who did not receive this credit.

A 1 percentage point increase in National Insurance set up by Labour will push the basic rate to 12 per cent.

Lower earners will be protected by an increase in the starting threshold.

Everybody should read table 1 and then whichever of tables 2-8 most closely applies.

If the primary goal of George Osborne’s Austerity Budget was to prevent Britain being marked out as the next weak link in the European economy, he came through the challenge with flying colours.

Last night, plaudits were pouring in both from the credit ratings agencies, which assess Britain’s borrowing power, and international watchdogs like the Paris-based Organisation for Economic Co-operation and Development.

Osborne certainly donned his hair-shirt – and the markets, which turned so viciously against Greece and the other Club Med economies this spring, seem satisfied for the time being.

'Bloodbath Budget': The Chancellor and Chief Secretary to the Treasury Danny Alexander with their team

Nevertheless, there is still huge cause for concern over the future of the British economy.

For the devastating truth is that even if all the assumptions in the Budget turn out to be true, and even if the Chancellor succeeds in imposing his ferocious spending cuts, our current national debt of £900billion will still rise to £1,300billion by 2014/15, because the annual shortfall between tax receipts and public spending – allied to the interest on the debt – will continue to accumulate.

In other words, after all the pain, Britain will still be a hugely indebted country.

Staggeringly, our interest payments alone on this debt in 2014/15 will be £66billion.

Another problem is that the Tories have dug themselves a very deep hole by committing themselves – as part of their election promises and the coalition deal with the Lib Dems – not to cut the NHS or overseas development budgets, and to leave education largely unchanged.

Because of this, the burden of cuts has to fall much more heavily on Whitehall, where Osborne has promised to cut other departmental budgets by 25 per cent over the next four years.

Slashing spending by this much in areas such as defence and transport, however, could prove simply impossible.

The Chancellor must be hoping that he can force through reforms of public sector pensions to ease the need for such enormous cuts.

He is also hoping to take even bigger chunks out of the welfare budget than those already announced yesterday.

The other slightly suspect area of the Chancellor’s Budget is the economic forecast.

Admittedly, the numbers have far more credibility than in the recent past, because they have been produced by Sir Alan Budd’s new Office for Budget Responsibility, which was set up to provide an independent assessment of the public finances.

But next year’s growth forecast of 2.3 per cent – although sharply down on Alistair Darling’s prediction of 3.25 per cent – could still be too optimistic.

And if the public sector shrinks, the big question is whether Britain’s moribund manufacturing sector and a shrunken City of London can take up some of the slack and generate jobs and taxable revenues.

£2.5BN TAX ON BAILED-OUT BANKS

Banks will be hit with a tax of £2.5billion a year to help atone for the damage they did to the national finances.

From January, the Government will slap a levy on all big banks operating in the UK, reflecting some of the unprecedented support lenders received during the financial crisis. Coinciding with similar moves in France and Germany, the British charge will raise £1.2billion in its first year, rising to £2.5billion by 2014.

But the City largely shrugged off Mr Osborne’s raid, which was far less punitive than many in the Square Mile had feared. Bankers had been braced for an annual hit of as much as £5billion.

Under Treasury projections, the levy is expected to raise £8.3billion between now and 2015, but that pales into comparison with the taxpayer support lavished on the financial sector since the 2008 collapse of Lehman Brothers.

Mr Osborne said: ‘This was a crisis that started in the banking sector and the failures of banks imposed a huge cost on the rest of society.’

ONLY A DENT IN THE DEBT MOUNTAIN

By the time George Osborne puts the national debt back on a downward trajectory, it will stand at an unprecedented £1.3trillion.

That is more than 70 per cent of gross domestic product – over twice the level a decade ago.

Draconian as the measures are, they are making only a modest dent in the state’s debt mountain.

By 2015-16, public spending cuts and tax hikes will have shaved the Treasury’s debt back from 70.3 per cent of GDP to 67.4 per cent.

But that reduction still leaves the public debt hovering far above the 40 per cent ceiling that Gordon Brown used to describe as ‘prudent’ under his now-defunct borrowing rules.

The Treasury’s huge debt pile stands as a testament to an explosion in public spending under Mr Brown when he was Chancellor, coupled with disappointing tax receipts.

The recession and banking collapse made matters worse. Last year the Treasury added another £155billion to the national debt.

If they cannot, and the economy fails to grow sufficiently, there will not be enough money flowing back into the Treasury to bring the budget back towards balance.

As yesterday’s Budget Red Book makes clear, much will depend on keeping interest rates low: George Osborne’s moves to cut our national debt are done with this aim in mind.

In his Mansion House speech last week, Bank of England governor Mervyn King made it clear that if the deficit was reduced, the Monetary Policy Committee (which sets interest rates) would try to keep down the cost of borrowing.

Osborne is trying his hardest to do the right thing. But he is asking for a transformation in the economy larger than anything seen in his own lifetime.

Bleak... and brief

George Osborne’s first Budget was not only bleak – it was also brief. His report ran to only 112 pages, just half the length of Alistair Darling’s March effort of 228 pages and paling in comparison with Gordon Brown’s 320 pages in 2007.

The new stripped-down Budget, with a plain red cover, was a deliberate symbol of more austere times.

Read more: http://www.dailymail.co.uk/news/budget/article-1288756/BUDGET-2010-George-Osborne-warns-pay-bloodbath.html#ixzz0rfVGG5e6