Snip, snip, snip

The much anticipated emergency budget is here, and Chancellor Osborne has finally had his moment with the famous red box. But did he come across, like his infamous Brummie namesake, as the Prince of Darkness that so many critics had predicted, or was this a sensible budget to reflect the altered economic conditions in post-recession Britain?

The unions seem in little doubt as to which side of the fence they sit on. Unite joint general secretary, Derek Simpson, said: “Osborne and Cameron’s talk of financial Armageddon is not because they have the solution to the deficit but to scare the British people into accepting the biggest attack on essential services for a generation. Today the mask slipped to reveal this government for what it is - Tory slashers of services and friends of the rich and powerful.”

UNISON general secretary, Dave Prentis, meanwhile, was even more belligerent, declaring: “This budget signals that the battle for Britain’s public services has begun with the Government declaring war. Freezing public sector pay when inflation is running at 5.1 per cent and VAT is going up, will mean a real cut in living standards for millions of ordinary workers and their families - already struggling to pay rising bills.”

TUC general secretary Brendan Barber was less histrionic, but equally damning, adding: “The economy is still fragile, and today’s measures will certainly slow recovery and could well stop it in its tracks. Spending and benefit cuts together with the VAT increase will take much needed spending power out of the economy. The private sector has been hit as hard as the public sector today.

“Public servants did nothing to cause the slump but are being asked to bear an unfair share of the burden. A wage freeze when inflation is high is a real cut in living standards - and the small concession for the low paid is still less than inflation. But we will all suffer from an economy that is now likely to be sluggish at best, and with a double-dip recession at worst.”

The rise in VAT was no surprise, though Liz Peace, chief executive of the British Property Federation at least found a glimmer of hope in it not being applied to newbuild housing: “Housebuilders will welcome the fact that they have avoided a VAT rise on newbuild properties, despite the LibDem manifesto suggesting it could have been a possibility.

Doing this would have been disastrous for the housing market,” she said. Even this rare moment of optimism was quickly stifled though, as she added: “However, the VAT hike will put more pressure on retailers and with 12.6 per cent of shops standing empty, we could see more damage done to the high street.”

There were other bright spots. The raising of the income tax threshold will help the poorest families, while the scrapping of Labour’s plans to increase employers’ National Insurance Contributions will be of benefit to local authorities who have already budgeted for the extra expenditure. Think tank LGIU, meanwhile, noted that the regions have not fared as badly as they might have feared, with a number of major capital projects surviving (such as Manchester’s Metrolink expansion and the renewal of Birmingham New Street Station) as well as tax breaks for job creation outside the South. Chief executive Andy Sawford commented: “The regions of the north are winners in this Budget. They will be keen to see the details of the white paper, which promises local leadership in job creation and capital projects. While it is good news for big infrastructure, as the budgets tighten there will be concerns that smaller, revenue heavy yet sustainable programmes are dropped.”

Sawford went on to urge government and local authorities to take the budget as a catalyst for reform of public service delivery, warning that “Centrally imposed cuts without real reform will damage local communities.”

No one was expecting today’s news to make pleasant reading, and with cuts of 25 per cent expected across the board to non-protected public services, it seems certain that challenging times lie ahead.

Key public sector changes at a glance
- Two-year pay freeze for staff earning over £21,000, flat £250 annual increase for those on less.
- Public sector pay review. Those at the top of organisations will no longer be allowed to earn more than 20 times the salaries of those at the bottom. No increase in overall wage bill.
- John Hutton to chair independent commission on public sector pensions. Consultation on scrapping default retirement age.
- Rise in state pension age to 66 to be accelerated.
- Private capital injenction to be sought for Royal Mail Group.
- Various welfare cuts – caps on housing benefit claims, child benefit frozen for three years, benefits to increase with CPI, not RPI.
- State pension to be relinked with earnings. Annual increase will be by highest of earnings, inflation or 2.5%