The OBR forecast that, as a result of the ongoing impact of the financial crisis, the euro area crisis and commodity shocks economic growth will be slower, the trend level of economic
output will be lower, and borrowing will be higher over the forecast period. In order to maintain economic stability and meet its fiscal rules, the Government will:
• set plans for public spending in 2015-16 and 2016-17 in line with the spending reductions over the Spending Review 2010 period;
• raise the State Pension age to 67 between April 2026 and April 2028 in response to changes in demography. This measure is expected to save around £60 billion in today's prices between 2026-27 and 2035-36;
• set public sector pay awards at an average of one per cent for each of the two years after the current pay freeze comes to an end. Departmental budgets will be adjusted in line with this policy, with the exception of the health and schools budgets, where the money saved will be recycled;
• uprate the child element of the Child Tax Credit and disability elements of tax credits in line with the Consumer Prices Index in 2012-13. The Government will not go ahead with the planned £110 above inflation increase to the child element of the Child Tax Credit and will not uprate the couple and lone parent elements of the Working Tax Credit in 2012-13, to ensure the welfare system remains affordable; and
• adjust the allocation of Official Development Assistance in line with the OBR's revised growth forecast, so that the UK spends 0.56 per cent of Gross National Income on Official Development Assistance in 2012, and 0.7 per cent in 2013 and thereafter.
These measures will reduce spending permanently in the medium and long term and make the public finances more sustainable. Over the Spending Review period, the Government will use the savings to build a stronger and more balanced economy, support social mobility and help young people find work.
The Government's strategy allows a more active monetary policy by the Bank of England to stimulate demand while controlling inflation. To complement this, the Government will launch a package of up to £21 billion of credit easing measures to support smaller and mid-sized businesses that do not have ready access to capital markets.
The OBR forecast that, including all measures set out in the Autumn Statement, the Government has a greater than 50 per cent chance of meeting its fiscal mandate and supplementary debt target.
The first section of Chapter 1 sets out the Government's economic and fiscal plans in more detail.