Plan B Forum

Chancellor George Osborne has said public sector pay rises will be capped at 1% for two years, as he lowered growth forecasts for the UK economy.

KEY POINTS

Growth forecasts for UK economy cut 0.9% this year and 0.7% next year
Borrowing forecasts revised up - an extra £111bn to be borrowed over five years
Pay cap of 1% for public sector workers once two-year pay freeze ends
Unemployment to rise from 8.1% this year to 8.7% next year
More public sector jobs forecast to go - 710,000 over five years
£40bn "credit easing" scheme to underwrite bank loans to small firms
Working age benefits will be uprated by 5.2% in line with September's inflation rate
Basic state pension to rise in line with inflation by £5.30
Other increases in tax credits will not go ahead in 2012-13
£5bn plan to improve national infrastructure over three years.
£1bn scheme to subsidise work placements for the young unemployed
£500m housebuilding plan in England
January rise in regulated rail fares to be capped at 6.2%, not 8.2%
Doubling of free childcare places for deprived two-year-olds to 260,000 in England
3p fuel duty rise due in January to be delayed or frozen
Bank levy to be increased

The number of public sector jobs set to be lost by 2017 has also been revised up from 400,000 to 710,000.

Borrowing and unemployment are set to be higher than forecast and spending cuts to carry on to 2017, he admitted.

For Labour, Ed Balls said the figures showed the chancellor's economic and fiscal plans were "in tatters".

Outlining his plans to MPs, based on economic forecasts from the independent Office for Budget Responsibility (OBR), Mr Osborne told MPs the UK economy was now forecast to grow by 0.9% this year - compared with 1.7% forecast in March and 0.7% next year, down from the 2.5%.

He said the eurozone crisis, a hike in global commodity prices and a new assessment that the UK's economic boom was bigger and the bust deeper than previously believed was to blame.

Borrowing was falling and debt would come down but "not as quickly as we wished". In 2011-12 borrowing is now forecast to be £127bn - up from £122bn forecast in the Budget and, over five years, the government is expected to borrow £111bn more than predicted in March.

But he said, because debt interest payments had dropped, the government would be spending £22bn less over this Parliament on that than predicted.

The OBR forecast that unemployment would rise from 8.1% this year, to 8.7% next year - before falling to 6.2% by 2016. Its earlier prediction that a squeeze on the public sector would mean 400,000 job losses over five years has been nearly doubled, to 710,000 - as a result of extra spending cuts pencilled in for 2015-16, and 2016-17.

The chancellor conceded he would not now be able to eliminate the structural deficit and see national debt falling by 2014/15 as had been predicted. The structural deficit is now predicted to be eliminated by 2015-16, pushing it beyond the next general election.

http://www.bbc.co.uk/news/uk-politics-15931086