The ‘generous’ UK state pension will remain untouched, George Osborne promised today, as he was confronted with a multi-billion pound black hole in his Budget.
The £4.4billion public finances gap is expected to open up by 2020 after the Tory U-turn on cuts to disability benefits in the wake of Iain Duncan Smith’s resignation over the Chancellor’s controversial Budget announcement.
Facing a hostile reception from Opposition MPs in the Commons today, Mr Osborne refused to countenance an attack on pensions to help fill the spending gap – while also insisting that the Government has no plans to make further welfare cuts.
Mr Osborne received more bad news on the public finances today with the release of official figures that showed borrowing fell by less than expected in February.
Speaking on the fourth day of the Budget debate, Mr Osborne told the Commons: ‘By not proceeding with the personal independence payment changes it means spending on disabled people will be just over £1billion a year higher by the end of the decade than was set out in the Budget.
‘This will be an important factor but only one of many that will affect the overall forecast for welfare that the OBR will make in the autumn and at that point we will assess the level of the cap, and what (Work and Pensions Secretary Stephen Crabb) said yesterday, with my full support, is that we don’t have further plans to make welfare savings to replace the billion pounds more we will spend on PIP.
‘We made very substantial savings in the Welfare Reform and Work Act that has just passed through Parliament so we’ve now legislated for £12billion a year of working-age welfare savings – the £12billion we committed to in our manifesto and we’re going to focus now on implementing that.
‘Let me just say this about benefits to pensioners because it’s been raised – in the same breath, some people say to me we’re not saving enough from pensioners but at the same time complaining about everything from long-term increases in the state pension age to keep pace with rising life expectancy, to restrictions on the lifetime allowances for the largest pension pots.
‘The truth is that we have made substantial savings from pensioner welfare – half a trillion pounds of savings.
‘They are vital to the long-term sustainability of our public finances but we’ve made these savings in a way that enables us to go on giving people who have worked hard all their lives a decent, generous basic state pension that we committed to in our manifesto, and I am not going to take that away from people.’
While he stepped away from an attack on the tax benefits of private pension saving in last week’s Budget it is thought the Chancellor will probably return to such a fundraising measure in a future Budget.
Mr Osborne received more bad news on the public finances today with the release of official figures that showed borrowing fell by less than expected in February, leaving the Chancellor dependent on an unlikely windfall in March to meet his £72.2billion target for the financial year.
The Office for National Statistics said the year-to-date budget deficit stood at £70.7billion in February after borrowing fell by less than expected, leaving Mr Osborne perilously close to his target.
It means that this month, the UK would have to borrow substantially less than the £7.4billion seen a year earlier to keep the Chancellor on track with last week’s Budget forecasts from the Office for Budget Responsibility.
The Centre for Economics and Business Research said it was ‘highly unlikely’ Mr Osborne will meet his borrowing targets and aim to get Britain back in the black by 2020.
It is predicting a deficit of around £30billion in 2019/20 – a far cry from the OBR’s surplus forecast.
David Kern, chief economist at the British Chambers of Commerce, said: ‘While there is gradual progress in reducing the deficit, the timetables outlined in the Budget last week remain too ambitious, and the return to surplus may take a bit longer than the Chancellor hopes.
‘The difficulties in implementing some of the planned budget cuts will increase the problem.’
ONS figures showed borrowing fell by £0.5billion year on year to £7.1billion in February.
Public sector net debt stood at £1.58trillion – or 83.1 per cent of gross domestic product – which is up £46.3billion on a year earlier.
Mr Osborne last week pledged to return the UK to a surplus by 2020, with the latest independent forecasts from the OBR revealing that the UK would have a budget surplus of £10.4billion in 2019/20 and £11billion the following year.
In a hearing with MPs on the Treasury Select Committee following the Budget, OBR chairman Robert Chote said there was still a 55 per cent chance that Mr Osborne would hit his surplus target despite the U-turn on disability payment cuts.
He confirmed the OBR would consider the impact of the changes to disability payment savings and welfare pledge when it publishes its next economic outlook.
The ONS said borrowing fell last month as the Government received £53.6billion in income, up around 5 per cent on a year earlier thanks to higher income tax and stamp duty receipts.
It also spent around 1 per cent less, at £57.1billion.
The ONS said just below two-thirds was spent by central government departments, around a third went on social benefits such as pensions, unemployment payments, child benefit and maternity pay, with the remainder being spent on capital investment and interest on the Government’s outstanding debt.