02/12/2012 08:35 GMT | Updated 02/12/2012 12:36 GMT

Autumn Statement: Osborne Warned More Austerity Measures Needed To Meet Deficit Targets

George Osborne has admitted it is taking longer for Britain to recover from the financial crisis than he hoped amid warnings that he will not meet his debt targets unless he hits households and businesses with more harsh austerity measures.

The Chancellor is already facing criticism from opposition politicians and unions, who accuse him of choking off the recovery with an overly-harsh plan.

Osborne told BBC1's Andrew Marr Show despite the delay, they were still making "real progress"


Osborne looked uncomfortable on Marr this morning

He said the independent Office for Budget Responsibility would report on Wednesday on whether the government would meet its economic goals.

"It is clearly taking longer to deal with Britain's debts, it's clearly taking longer to recover from the financial crisis than one would have hoped but we have made real progress.

"The deficit is down by a quarter, there are a million more jobs in the private sector and to turn back now, to go back to the borrowing and the debt and the spending that (shadow chancellor) Ed Balls represents would be a complete disaster for our country.

"We had two targets, one was to get debt share falling as a share of national income by 2015/16 and also to balance the current budget," he told BBC 1's Andrew Marr Show.

Mr Osborne added: "The latest GDP figures showed growth. If you are telling me it's a tough environment out there and I wish the British economy was growing more like the rest of the world economy was growing, well of course I would say yes to that.

"But the question is how do you get there, how do you deliver that and I think undermining the credibility of our deficit plan, going back on our commitment to deal with our debts would be a complete catastrophe for Britain and would put us into the place where some European countries are at the moment and that is not a place where Britain wants to be."

george osborne

George Osborne said turning back would be 'a disaster'

Writing in the Sun on Sunday, Osborne reiterated his commitment to rebalancing the budget, saying: "Britain is on the right track and turning back now would be a disaster.

The independent tax and spending watchdog, the Office for Budget Responsibility (OBR), is expected to increase the pressure by slashing its growth forecasts and predicting borrowing will be billions of pounds higher over the next five years than previously expected.

Experts said the Chancellor will have to put back his goal to cut the nation's debt as a percentage of gross domestic product (GDP) in 2015/2016 or face the unpopular decision of further spending cuts and tax rises.

The Institute for Fiscal Studies warned a VAT hike may be required to tackle the nation's debt, which at the end of October was £1.1 trillion, equal to 67.9% of GDP.

The chances of the Chancellor altering the debt target were heightened after Bank of England governor Sir Mervyn King effectively endorsed such a move earlier this year, on condition that the global economy was growing slowly.

Writing in the Mirror, Ed Balls said: "We need a change of course from David Cameron and George Osborne. When the medicine makes the patient sicker, you don't just take more of it. We need to change the medicine, or change the doctor."

Vicky Redwood, economist at Capital Economics, said: "The Chancellor remains hemmed in by the fiscal position.

"Indeed, he may well have to choose between introducing even more austerity in the autumn statement and letting at least one of his fiscal rules slide."

Capital Economics expects the OBR to cut its GDP forecasts to a 0.2% decline for 2012, down from 0.8% growth in the March forecast, while 2013 will slip to 1.3% from 2%.

Meanwhile, forecasts for public sector borrowing, excluding financial interventions such as bank bailouts, will increase to £127 billion this year, from £120 billion, while the requirement for 2013 will be bumped up to £100 billion from £98 billion.

In the last figures to be published before his autumn statement, borrowing - excluding financial interventions such as bank bailouts - was £8.6 billion in October, up £2.7 billion on the same month last year.

Public sector borrowing for the year to date is £73.3 billion, excluding a one-off £28 billion boost from the transfer of the Royal Mail pension fund into Treasury ownership, which is £5 billion higher than the same period last year.