Bittersweet Budget as 'cocktail' of risks derails fiscal plans

George Osborne has unveiled a new sugary drinks tax to fight childhood obesity, as he blamed a "dangerous cocktail" of risks from the global economy for derailing his fiscal plans.

The independent Office for Budget Responsibility upgraded borrowing forecasts by a total of £56 billion over the coming five years, forcing the Chancellor to announce an additional £3.5 billion in spending cuts to keep alive his hope of hitting his target of getting the nation's books into surplus by 2019.

Delivering one of his most difficult Budgets yet, the Chancellor was forced to admit that Government debt will rise as a proportion of GDP this year - breaking a key rule he had set himself - and growth forecasts have been sharply revised down.

But Mr Osborne was able to deliver a freeze in fuel duty for the sixth successive year, and gave tax cuts to millions of families by raising the income tax personal allowance to £11,500 and the higher 40p rate to £45,000 next year.

There were also boosts for business, with 600,000 small companies taken out of rates altogether and a cut in corporation tax from 20% to 17% by 2020. And Mr Osborne sought populist applause by freezing duties on beer, spirits and most ciders.

A new Lifetime Isa will help under-40s save for their first homes, with a 25% bonus from the Government on up to £4,000 of savings a year.

But the respected Institute for Fiscal Studies thinktank said that overall the Budget delivered "measures that will increase tax revenues and cut spending". IFS programme director Gemma Tetlow told BBC Radio 4's World at One: "The big picture is weaker economic performance meaning that the underlying forecast for borrowing increases really quite significantly".

The independent Office for Budget Responsibility said that signs of a pick-up in productivity growth which allowed the Chancellor to deliver a sunny Autumn Statement in November had turned out to be a "false dawn", as it downgraded its growth estimates for this year from 2.4% to 2% and next year from 2.4% to 2.2%

Confirmation that the fiscal rule had been broken came as Mr Osborne revealed that debt was now expected to be 82.6% of GDP in 2016/17 rather than 81.7%. The OBR also pushed up its forecast for 2017/18, from 79.9% to 81.3%, and for 2019-20 from 77.3% to 79.9%. By 2020-21 it will be 3.4% higher than previously expected at 74.7%.

The deficit - the amount the Government spends above what it takes in - is forecast to fall next year to 2.9%, rather than the 2.5% anticipated before.

Mr Osborne insisted the UK was "well placed" to handle the worldwide slowdown and said that the Government would "act now so we don't pay later".

Despite the turbulence, Mr Osborne said the Government still expected to record a slightly larger overall surplus by 2019-20 than previously predicted, at £10.4 billion.

"In this Budget we choose the long term," said the Chancellor. "We choose to put the next generation first. Sound public finances to deliver security, lower taxes on business and enterprise to create jobs, reform to improve schools, investment to build homes and infrastructure - because we know that's the only way to deliver real opportunity and social mobility.

"And we know that the best way we can help working people is to help them to save and let them keep more of the money they earn."

In comments likely to enrage Tory Eurosceptics, the Chancellor used the platform of his parliamentary set-piece to warn that leaving the EU was one of the biggest risks to the UK's future. He also dragged the OBR into the referendum row, quoting the independent watchdog as agreeing that Brexit would lead to "disruptive uncertainty".

Labour leader Jeremy Corbyn described Mr Osborne's Budget as the culmination of "six years of his failures" and said it had "unfairness at its very core" because it offered Capital Gains Tax cuts for the rich at a time when disabled people are losing benefits.

And Liberal Democrats accused the Chancellor of smuggling in a cut "by the back door" as he revealed public sector employers will have to increase their contributions to unfunded pension schemes - such as those operated for the Army, NHS staff, and teachers.

Dave Penman, general secretary of the FDA, which represents senior civil servants, said the move would effectively transfer £2 billion a year from public services to the Treasury from 2019/20 in what he branded "a political con trick that can only further damage public services".

A series of major infrastructure projects were outlined, including the HS3 train project and Crossrail 2, while tolls on the Severn Crossings between England and Wales are to be halved by 2018.

And Mr Osborne confirmed the widely-trailed announcement that all schools will be expected to be on track to become academies by 2022.

But the most eye-catching news was the new tax on sweet drinks from 2018, which will see companies charged according to the level of sugar in their products. The £520 million raised will be used to help support primary school sport.

The levy was welcomed by health campaigners including TV chef Jamie Oliver - who tweeted the message "We did it!" to supporters - but sent shares in soft drinks companies tumbling on the stock exchange.

CBI director general, Carolyn Fairbairn, said: "After a year of surprises, this was a stable Budget for business facing global stormy waters. The Chancellor has listened to our concerns about the mounting burden on firms and chosen to back business to grow the economy out of the deficit."

But Len McCluskey, general secretary of the Unite union, said Mr Osborne had been exposed as a "one-trick chancellor - and his one trick is to cut because he refuses to act to grow our economy".

Shadow chancellor John McDonnell said the Chancellor's economic credibility was "completely shot through" because he had been unable to meet his own targets.

Mr McDonnell said it was "morally reprehensible" that of total savings of almost £4.2 billion due by 2020/21, £1.3 billion would come from the cuts to personal independence payments for disabled people. Labour would restore the 20p corporation tax rate and ditch Mr Osborne's surplus target, he said.