UK government to make further spending cuts

The UK economy has not met the recovery targets set by the government, and more spending cuts will be required in order to control public finances, the Britain's finance minister has said.

George Osborne told politicians on Wednesday that a poor recovery and a downturn in Europe means that the economy would grow by 1.2 per cent next year, down from the two per cent predicted in March.

Austerity measures will be extended to 2018 and Osborne looks set to miss key debt-reduction targets.

He also announced more money for roads and schools and axed a planned 3p fuel duty rise, in his Autumn Statement.

The minister's target for public sector debt to start dropping as a percentage of GDP by 2015-2016 has also been pushed back a year.

"The tougher economic conditions mean that while our deficit is forecast to go on falling, instead of taking three years to get our debt falling, it's going to take four," Osborne said.

Government spending will therefore have to be cut by a further one per cent next year, and two per cent the year after.

Osborne said that the government would also be cracking down on tax avoidance and would provide further incentives for business investment.

Public sector net debt was earlier forecast to start falling in the 2016-2017 financial year to 79.2 per cent, before dropping to 77.3 per cent in 2017-2018.

Osborne urged politicians to stay the course laid out by his government.

"We are making progress. It's a hard road, but we are getting there. Britain is on the right track and turning back now would be a disaster," he said.

The Conservative-Liberal Democrat coalition government, which came to power in 2010, has imposed a series of painful austerity measures to slash a record deficit that was inherited from the previous Labour administration.

David Cameron, prime minister, and Osborne have overseen the loss of tens of thousands of public-sector jobs, slashing workforces in the military, health service and various state departments.

The government has faced huge demonstrations from disgruntled workers and students in response to the cuts.

The main opposition Labour party said Osborne's economic plans were "in tatters".

Ed Balls, the party's finance spokesman, said: "Today, after two and a half years, we can see, people can feel in the country, the true scale of this government's economic failure.

"Our economy this year is contracting, [and] the chancellor has confirmed government borrowing is revised up this year, next year and every year."

Britain's fiscal policy watchdog, meanwhile, said on Wednesday that more than one million jobs would now be cut from the public sector by 2018 due to the new spending cuts.

The independent Office for Budget Responsibility (OBR), which produces forecasts that underpin the government's economic policy, said gross domestic product would grow much more slowly than it forecast in March.

According to the OBR, about 1.1 million general government jobs would be lost in total from the coalition's austerity plans, which got underway in mid-2010, "reflecting the additional year of spending cuts pencilled in for 2017-18".

In March, it had expected about 730,000 public sector jobs to be cut across the full period of austerity.

There are roughly five and half million people employed in Britain's public sector.

The OBR also predicts a 0.1 per cent fall in GDP in the fourth quarter, followed by 0.3 per cent growth in the first three months of 2013.

Income tax personal allowances will go up by £1,335 - £235 more than previously announced - so no tax will be paid on earnings under £9,440.

The threshold for the 40% rate of income tax is to rise by 1% in 2014 and 2015 from £41,450 to £41,865 and then £42,285.

The basic state pension will rise by 2.5% next year to £110.15 a week.