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George Osborne bowed to growing concern with instant 1p fuel duty cut for ‘Ford Focus’ voters and tax raids on banks George Osborne has bowed to growing concern over the biggest squeeze in living standards since the second world war with an instant cut in fuel duty, but had his claim to be delivering a budget for growth undermined by the ominous prospect of lower growth, rising unemployment and higher borrowing. While insisting the government was sticking to its austerity plan despite a gloomier outlook for the economy, the chancellor levied a surprise £2bn windfall tax on North Sea oil companies to finance a populist 1p a litre reduction in the price at the pumps as the unexpected finale of a reform package focused on reversing Britain’s economic decline. The chancellor said he was “putting fuel in the tank of the British economy” by liberalising Britain’s planning laws, scrapping red tape, simplifying the tax system and creating a Green Investment Bank to fund the expansion of environmental companies. But he was forced to admit that growth this year would be just 1.7% – lower than the 2.1% expected – while 200,000 fewer jobs would be created during this parliament. Figures from the independent Office for Budget Responsibility showed slower growth would result in £45bn extra borrowing between now and 2015. The downgrades were denounced by Labour as the first solid proof that the government’s medicine of an unprecedented deficit reduction programme was hurting, but not working. Ed Miliband, the opposition leader, accused Osborne of “Del Boy economics”, pointing out that he had put 3p on the price of fuel through the January increase in VAT. Osborne said the government’s determination to stick to its deficit reduction plan meant there was no room for an overall budget giveaway but announced an increase in the bank levy, a crackdown on tax avoidance and a tougher regime for North Sea oil and gas producers. They would fund a bigger than planned 2p cut in corporation tax, an increase in the number of apprentices and help for first-time buyers as well as scrapping the inflation-busting increase in fuel prices that Labour had pencilled in for next week. The Treasury claimed the package meant fuel would be 6p a litre cheaper from April – a saving of £3 on filling up a Ford Focus. If January’s VAT increase were taken into account, the reduced cost of filling the same car would be £1.50, officials said. Ending the fuel duty escalator, agreed late in the budget process along with the extra 1p cut in corporation tax, caused friction among members of the cabinet worried by its impact on the government’s climate change targets. The measures also attracted criticism from environmental groups. Signalling his keenness to scrap the 50% top rate of income tax, Osborne also pleased his Liberal Democrat coalition allies by saying the tax-free personal allowance would be raised by £630 to £8,105 from next April – a cut in tax bills of £48 a year on average in real terms. However, the chancellor also announced that from April 2012 direct tax allowances would be raised in line with the CPI, a move that would raise an extra £1bn for the exchequer by the end of this parliament. The chancellor said he was trying to create a “Britain carried aloft by the march of the maker”. He added: “This is how we will create jobs and support families. “Last year’s emergency budget was about rescuing the nation’s finances, and paying for the mistakes of the past,” he went on. “Today’s budget is about reforming the nation’s economy, so that we have enduring growth and jobs in the future. And it’s about doing what we can to help families with the cost of living and the high oil price.” Miliband countered: “One fact says it all and he couldn’t bring himself to say it: growth down last year, this year and next year. It’s the same old Tories. It’s hurting, but it isn’t working. Every time he comes to this house his growth forecast is downgraded.” He added: “It didn’t happen by chance, it happened by choice. His choice – and it’s the wrong choice – to go too far and too fast.” This was not “by chance” but because of “wrong” policies, Miliband said. Osborne admitted that higher inflation, leading to higher welfare payments and debt interest payments, did mean higher borrowing, but said the OBR regarded this as cyclical. It would melt away as growth picked up in future years, he said. The OBR said it still expected the government to meet its fiscal target a year earlier than the goal of 2015-16. This would leave the coalition government free to cut taxes or raise benefits in the runup to a 2015 general election. The chancellor unveiled a series of measures aimed at boosting enterprise – including a further cut to corporation tax, which will go down by two percentage points rather than one in April. He also promised to reduce capital gains tax for entrepreneurs selling shares. With spending cuts likely to hit hardest in the poorest regions of Britain, the chancellor more than doubled the number of planned enterprise zones – from 10 to 21. These areas will benefit from looser planning laws. Changes to the planning system will make it more difficult for local people to block “sustainable development” and easier for builders to convert commercial property into housing. His measures on tax avoidance and non-domiciles – they will have to pay a £50,000 charge if they have lived in the UK for 12 years – were met with disappointment, however. The former Liberal Democrat Treasury spokesman Lord Oakeshott said the measures against non-domiciles were a flea bite and would leave them “laughing all the way to the Cayman Islands”. Businesses were pleased by the larger than expected cut in corporation tax. However, the TUC general secretary, Brendan Barber said it had been “a no-change budget”. “The chancellor has been forced to reveal the evidence that his policies aren’t working but has not had the courage to change them,” he said. Budget George Osborne Budget 2011 Economic policy Larry Elliott Patrick Wintour guardian.co.uk