George Osborne delivered his Autumn Statement on Tuesday, updating the latest growth forecasts and government borrowing figures and declaring that the programme of cuts will continue.
The Chancellor also unveiled a series of announcements designed to boost consumer confidence and ease woes for small businesses.
The Office of Budget Responsibility (OBR) has made downward revisions to its growth forecast for the UK.
The 2011 forecast was reduced to to 0.9% and to 0.7% next year.
In 2013, 2014 and 2015, forecast growth will be 2.1%, 2.7% and 3%
In the Budget in March, the OBR cut its growth forecast for 2011 to 1.7% and its 2012 forecast to 2.5% and had been expected to cut both again to around 1%.
Not slipping into another recession
Osborne emphasised that the OBR did not see the UK slipping into recession again in the near future, but said it remained a risk going forward.
"The central forecast we publish today from the independent for Office for Budget Responsibility does not predict a recession in Britain, but they have unsurprisingly revised down their short-term growth prospects for our country, Europe and the world."
The Chancellor warned that "if the rest of Europe heads into recession it may prove hard to avoid one here in the UK."
He put the eurozone crisis squarely at the centre of economic gloom, stating: "We will do whatever it takes to protect Britain from this debt storm while doing all we can to build future growth."
Osborne said he will ensure Britain has "the will to live within its means and keep interest rates low" and added: "Our challenge is even greater than we thought because the boom was bigger, the bust was even greater and the effects will last even longer."
- The Chancellor confirmed the forecast as £127 billion in 2011-2, falling to £120 billion, £100 billion, £79 billion and £53 billion in following years.
- There will be an additional £112 billion in borrowing over four years.
- The UK's debt to GDP ratio is expected to peak at 78% in 2014-5, falling afterwards.
- Lower interest payments have been agreed, which means a saving of £22 billion on interest.
- Osborne said: "I am clear that our rules must be adhered to and I'm taking action to make sure that they are. The current structural deficit is forecast to fall from 4.6% of GDP this year to a surplus of 0.5% in 5 years' time."
- The government will miss its target on the deficit and the OBR expects the UK to be running a structural deficit of £53billion in 2015/16, compared to an original estimate of £6 billion.
- The bank levy will rise from 0.075% to 0.088% from 1 January 2012. Osborne said the change will ensure the levy generates its expected £2.5 billion of revenue per year.
- A 1% cap will be imposed on public sector pay rises for two years after the end of current freeze next year.
- There will also be a review into regional pay adjustments.
- The rise in state pension age to 67 will be brought forward to 2026, saving £59 billion.
- The basic state pension will rise by £5.30 to £107.45 and the pension credit will increase by £5.35.
Small and medium-sized businesses
- As trailed ahead of the statement, a credit-easing programme will be implemented to underwrite up to £40 billion in low-interest loans to small and medium-sized firms.
- A £1 billion business finance partnership will also be put in place to help secure funding for medium-sized firms.
- The Regional Growth Regeneration Fund will receive £1 billion in extra funding.
- 22 enterprise zones to go ahead.
- A £250 million support package will be implemented for energy-intensive firms.
- The tax rate relief holiday for small firms will be extended to April 2013.
- There will be £5 billion in new spending over three years, with 35 road and rail projects being launched across England.
- The Treasury will aim to gain a committment for a further £20 billion in investment from pension funds.
- The 3p fuel duty increase which was scheduled for January has been scrapped. Duty will rise by 3p in August 2012.
- The rise in regulated rail fares will be capped at 6.2% - 1% above inflation - in January, down from 8.2%.
- A £1 billion "youth contract" will be introduced to subsidise six-month work placements for 410,000 young people.
Homes and property
- A new mortgage indemnity scheme will be rolled out to help up to 100,000 people buy homes with 5% deposit.
- A £400 million scheme to kick-start stalled construction projects in England.
- Council tenants who want to buy their homes will be invited to do so at a 50% discount.
Families and education
- There will be a £50 reduction in water bills for families in the south-west of England.
- £1.2 billon will be invested in school buildings.
- 100 additional free schools to be built.
- The number of childcare places for the most deprived two-year-olds in England will be doubled to 260,000.
- The disability and child element of child tax credits to rise in line with inflation next year.
- The pension credit will increase by £5.35.
- A below-inflation increase will be applied to some working tax credits.
- Benefit payments will be uprated by 5.2% next year, in line with inflation.
- Overseas aid funding will be capped at 0.7% of total GDP.
This article was written for our sister website Interactive Investor