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Sobering thought as dark tunnel of austerity still looks to be very long

PUTTING it in practical terms, the Chancellor yesterday told the nation we have only just entered the long, dark tunnel of austerity and are merely two years into an eight-year ordeal.

It's a sobering thought.

Having trailed the mini-Budget with comparatively upbeat announcements about a capital spending splurge and tackling the nasty multinational tax dodgers, it was always going to be the case that the meat of the Autumn Statement would be rather less appealing with confirmation the economy will actually shrink this year.

George Osborne probably could not believe his luck when the Office for Budget Responsibility (OBR) figures showed that borrowing was down and the deficit was actually falling; Shadow Chancellor Ed Balls said he wanted the figures double-checked. It gave him a bit of cover as did the independent forecaster's emphasis for our woes on the eurozone crisis.

Here too there was a stark warning. The OBR said the difficulties on the continent would not be solved quickly and were likely to hold back Britain's economy for several years to come. It then added: "A more disorderly outcome remains a clear possibility."

But the fact is that the Coalition is really not much further forward in balancing the books than when it took power in 2010 and will fail to meet its debt target – the two key tests it set itself.

Indeed, the Treasury having bombarded us with grim statistics, pointed out next year it would start a review to see where it could find another £10 billion of savings, on top of the £6bn it has already identified for 2015.

The scrapping of the 3p-a-litre fuel duty rise and the extra hike in the tax-free threshold were welcomed but could not hide the pain.

Benefit claimants are going to be squeezed over the next few years and, given that the Liberal Democrats' plan for a mansion tax has been ruled out, it was then decided to hit the better off with a reduction in pension tax relief.

No doubt, targeting both ends of the social spectrum will be hailed by the Chancellor's friends as showing how we are all in this together; some more than others perhaps as 400,000 more people will be paying higher rate tax in this parliament.

Mr Osborne believes his targets of "bureaucracy, benefits and the better off" are popular with the punters.

Indeed, the cut in benefits was explained by Whitehall sources as a "rebalancing" – welfare recipients had seen higher increases in their benefits compared to those earning a wage and so it was "only fair" they now shared some of the pain.

While the Prime Minister and the Chancellor have denounced Labour's Plan B as the plan for bankruptcy, their emphasis on capital spending for roads and schools gives the impression of a Plan A+.

Other surprises included the extra cut in corporation tax and the rowing back from the idea of regional pay.

Of course, what the 2018 austerity time-frame means is that the next General Election, in 2015, will be fought against a grim backdrop and while the nation is still getting poorer.

Just how the differing parties calibrate their message to the voters amid all this doom and gloom will be interesting to see.

For that matter, the Scottish independence referendum campaign will also be fought while the nation gets accustomed to an ever tightening belt.

OBR data yesterday could figure in the yes-no battle as they showed that oil and gas revenues were due to plunge from £7.3bn in 2013/14 to £4.4bn in 2017/18, mainly due to a fall in prices.

The pro-UK forces pointed out that, seeing how the Nationalists have predicted their vision of a bright, new Scotland on the North Sea bounty, then the slump in revenue proved the folly of their plans for Scottish independence.

The SNP Government shrugged its shoulders and insisted there was still plenty of resources under the sea.

So as we travel through the long, dark tunnel of austerity, we can only hope that the light at the end of it will finally reveal the bright skies of a new economic dawn and not the oncoming train of another economic disaster.

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