The Government 'has run out of money' and cannot afford debt-fuelled tax cuts or extra spending, George Osborne has admitted.
In a stark warning ahead of next month’s Budget, the Chancellor said there was little the Coalition could do to stimulate the economy.
Mr Osborne made it clear that due to the parlous state of the public finances the best hope for economic growth was to encourage businesses to flourish and hire more workers.
Mr Osborne’s bleak assessment echoes that of Liam Byrne, the former chief secretary to the Treasury, who bluntly joked that Labour had left Britain broke when he exited the Government in 2010.
He left David Laws, his successor, a one-line note saying: “Dear Chief Secretary, I’m afraid to tell you there’s no money left”.
Mr Osborne is under severe pressure to boost growth, amid signs the economy is slipping back into a recession.
The Institute of Fiscal Studies has urged him to consider emergency tax cuts in the Budget to reduce the risk of a prolonged economic slump.
But the Chancellor yesterday said he would stand firm on his effort to balance the books by refusing to borrow money. “Any tax cut would have to be paid for,” Mr Osborne told Sky News. “In other words there would have to be a tax rise somewhere else or a spending reduction.
“In other words what we are not going to do in this Budget is borrow more money to either increase spending or cut taxes.”
The strongest suggestion of help for squeezed family budgets came from the Chancellor’s claim that he was “very seriously and carefully” considering plans to help lower earners by raising the personal allowance for income tax, a proposal that has been championed by Nick Clegg, the Deputy Prime Minister.
But he implied there would be no more help for motorists struggling with record petrol prices this spring. “I have taken action already this year to avoid increases in fuel duty which were planned by the last Labour government,” he said.
The Chancellor’s tough words were echoed by Liberal Democrat Jeremy Browne, the foreign minister, who warned that Britain faced “accelerated decline” without measures to tackle its debt and increase competitiveness.
In an article published today in The Daily Telegraph, he writes that Britain’s market share in the world used to be “dominant” but was now “in freefall” compared with the soaring economies of Asia and South America. “This situation has been becoming more acute for years,” he adds. “It is now staring us in the face. So we need to take action.”
Mr Browne writes that reform of pensions, welfare and defence is essential to stop the departments “collapsing under the weight of their own debt”. “Just because the spending was sometimes on worthy causes does not in itself mean it was affordable,” he says.
“Doing nothing when your prospects are at risk of declining is not the safe option. More of the same may be superficially more popular in the short-term but that does not make it right.”
Amid warnings that Britain urgently needed to adopt a more pro-business outlook, senior Conservatives have urged the Government to get rid of the 50 pence top rate of tax.
Figures from the Treasury last week suggested the policy was not raising the expected amount of revenue and was threatening to drive leading business people and entrepreneurs away from Britain. Dr Liam Fox, the former Conservative Defence Secretary, yesterday argued for the top tax rate to be scrapped, but added that cutting taxes on employment was even more important.
“I would have thought the priority was getting the costs of employers down and therefore I would rather have seen any reductions in taxation on employers’ taxation rather than personal taxation,” he told the BBC’s Sunday Politics show.
Any efforts to scrap the rate this parliament would face severe opposition from within the Coalition.
Simon Hughes, Liberal Democrat deputy leader, said yesterday that keeping the current 50p rate was “the right thing to do”. He told the BBC: “I represent people in a pretty solid working-class community. What they’re concerned about is what happens to ordinary people out of work and where they get jobs.”
Last night, Labour argued Mr Osborne needed to take a more proactive stance on boosting growth by increasing public spending.
Chris Leslie MP, the shadow Treasury minister, said it was wrong of the Chancellor to argue that Britain was broke and to rely on business alone to create economic growth.
“George Osborne can’t complacently wash his hands and claim the lack of jobs and growth in the economy is nothing to do with him,” he said.
“He needs to realise that government has a vital role to play in creating an environment where the private sector can grow and create jobs.”
Harriet Harman, Labour’s deputy leader, urged Mr Osborne to cut VAT.
Meanwhile, the Chancellor made it clear he was resisting pressure to hand over up to another £17.5billion in taxpayers’ money to help bail out struggling European Union countries.
He said Europe had not “shown the colour of its money” by taking measures to help itself tackle its debt problems.
Until that happens, Britain will not give any extra funds to the International Monetary Fund.
The Chancellor was speaking as finance ministers from the world’s 20 most powerful economies met in Mexico.
Mr Osborne said: “While at this G20 conference there are a lot of things to discuss; I don’t think you’re going to see any extra resources committed (to the IMF) here because eurozone countries have not committed additional resources themselves, and I think that quid pro quo will be clearly established here in Mexico City.”
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Osborne blow to drivers as diesel hits new record high and Chancellor admits 'we've run out of money'
- Diesel prices reach eye-watering 150.9p a litre at M6 service station
- It now costs more than £100 to fill up the 70-litre tank in a typical family car
- Osborne rules out fuel duty cuts in budget
- Thousands of campaigners to lobby MPs at Parliament on March 7
- Threat of blockade in Iran could force further hikes in fuel prices
- Fears of protests, recession and drivers being forced off the road
- New poll says petrol prices are major concern for nearly 60% of people
Last updated at 9:16 AM on 27th February 2012
Diesel soared to a record £1.50 a litre yesterday as Chancellor George Osborne made it clear that he cannot afford fuel duty cuts in next month's Budget because the country has 'run out of money'.
The price was spotted at a Shell garage on the M6 near Coventry, with average diesel prices now standing at 143.61p and petrol at 135.39p.
The cost of filling up has almost doubled since the fuel protests of 2000, and experts predict further increases because of instability in the Middle East.
Soaring prices: Fuel prices pass the 150 mark at Corley Service Station, M6 near Coventry
Slashing prices: The discount offered by the supermarket giant is the biggest ever in the UK and will be welcome news for drivers
Campaign group Fair Fuel UK said it planned a mass lobby of Parliament to combat what it calls an 'absolute crisis' hitting families and businesses.
But Mr Osborne signalled he will not be able to repeat fuel-duty freezes or cuts, having already spent billions to keep fuel duty 6p lower than it would otherwise have been.
The Chancellor said the 'British government has run out of money' and that 'all the money was spent in the good years'. The days of 'unlimited' resources for the state were gone for good.
Despite forecasts that he will beat his deficit reduction targets for this year by as much as £10billion, the Chancellor said there was no room for tax cuts in next month's Budget.
Tory MPs are urging Mr Osborne to meet the party's pre-election pledge to introduce a 'fair fuel stabiliser' to help cash-strapped motorists.
Instead of implementing real reform of the tax system – so fuel duty goes down when oil prices go up – the Chancellor slapped a supplementary tax charge on oil and gas production in the North Sea to help keep prices at the pumps lower.
Before the election, the Tories hailed the idea of a stabiliser as a classic example of 'fixing the roof when the sun is shining', which would mean the Government saved money in the good times to help in the bad.
Currently, fuel duty is planned to rise every year by at least the rate of inflation, regardless of what happens to the price of oil. In addition, the other tax levied on fuel, VAT, is charged at the standard rate. So as the price of fuel rises, the amount of VAT charged also rises.
Mr Osborne said yesterday he had already taken expensive steps to ease the pain of rising petrol and diesel prices.
'Fuel duty is 6p lower than it otherwise would have been,' he said. 'I have shown willingness to respond to international fuel increases and have taken action this year to tackle fuel duty rises, which were planned by the last Labour government.'
It is estimated that the price of diesel and petrol at the pump has risen by 25 per cent and 20 per cent respectively over the past two years.
Mr Osborne cut fuel duty by 1p a litre in last year's Budget and announced in his autumn statement that a scheduled 3p rise would be postponed until August. He said his changes will save each family £144 a year.
Road rage: Soaring oil prices and a planned rise in fuel duty could lead to protests like the 'Go Slow' demonstration of last May
HOW OIL PRICES AFFECT YOUR WALLET
The rising cost of crude oil is the key factor behind the soaring price of petrol.
The biggest influence on prices at present are:
- Stand-off between the UN and oil producer Iran
- Disruption of supplies from unstable producer Nigeria
- Threat to the global economy - and therefore oil demand - from the debt crisis in Western countries.
The price of diesel in the UK rose to an all-time high this month as speculators drove up crude oil prices and refineries failed to keep up with British demand
A YouGov poll yesterday revealed that 58 per cent of adults think they are spending more on fuel than a few years ago. Campaign group Fair Fuel UK plans to confront MPs on March 7, and is due to hold talks with Treasury Minister Chloe Smith tomorrow.
Spokesman Peter Carroll said: 'This is an absolute crisis. Enough is enough. The current fuel prices are killing the economy and stunting growth.
'The Government has to cut fuel duty to create jobs and stimulate growth to start getting the deficit down.'
Supermarket giant Morrisons has prompted a price war by slashing 15p off a litre of petrol for anyone spending £60 in its stores, the largest discount ever offered in the UK.
John Woodcock, Labour transport spokesman, said: 'George Osborne needs to take action in his Budget. A temporary cut in VAT, which is part of Labour's five-point plan for jobs and growth, would mean an immediate drop in fuel prices and make a real difference to families.'
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