UK AUTUMN BUDGET STATEMENT:BRITISH CHANCELLOR of the exchequer George Osborne has accepted publicly that he cannot bring the UK's finances under control by 2015, as he warned Britain could easily slip back into recession because of the euro crisis.

Instead of enjoying a £6 billion surplus in the months before the 2015 election, Mr Osborne told the House of Commons the UK will still be £24 billion in the red on its current account – and he hinted that the figures could get worse.

Insisting the economy is still growing, Mr Osborne acknowledged that a recession next year cannot be ruled out, but he blamed the possibility of this on the impact of the single currency’s difficulties.

The public pay bill, which has been frozen since early 2010, will rise by just 1 per cent next year and the year after, bar annual increments due to some officials – but staff living in country areas could also face curbs with the abolition of national grades.

However, Mr Osborne announced some populist measures, including a discounted sell-off of council houses, delays in fuel price rises, the largest-ever increase in state pension and state-backed cheaper loans for business.

The Conservatives/Liberal Democrats alliance, he said, has won credibility with the financial markets by “demonstrating that this country has the will to live within its means and keep interest rates low”.

The decisions highlighted the need to keep both wings of the coalition happy: the Conservatives won significant changes to employment laws to make it easier to sack workers and help for steel plants and other heavy-energy users affected by climate change emissions bills. In turn, the Liberal Democrats pointed to the pension rise, increases in tax-credits for families, £380 million to double free nursery places, and measures to boost broadband and mobile signals in remote areas.

Prime Minister David Cameron’s right-wingers have also been sent a signal, with the announcement that cuts will be made to the overseas development budget – though the treasury insisted this was only because the 0.7 per cent target would have been exceeded if cuts were not made now.

Liberal Democrats chief secretary to the treasury Danny Alexander insisted the British government remained wedded to spending targets, but they are “going to take a little bit longer” to achieve. Small businesses will get access to cheaper loans, guaranteed by the treasury, while £5 billion will be cut from current spending and spent instead on capital projects – backed by £25 billion worth of pension fund investments, he said.

The retirement age, which will have risen to 66 in 2020, will go up by a year in 2026 to 67 – 10 years earlier than scheduled, though Mr Osborne said it would save £50 billion and keep the state pension safe. Besides delaying fuel prices, Mr Osborne has restricted rises in train fares, which were to go up by 3 per cent beyond inflation next year. Now they will rise by 1 per cent plus inflation.

Explaining the decision to grant £250 million to heavy-energy users, Mr Osborne said “it will keep industry and jobs here in Britain. It is a reminder to us all that we shouldn’t price British business out of the world economy. If we burden them with endless social and environmental goals . . . jobs will be lost, and our country will be poorer.”

THE MAIN POINTS

• Economic growth in 2011 will be 0.9 per cent (down from 1.7 per cent) and 0.7 per cent in 2012 (2.5 per cent)
• Public sector pay rises capped at 1 per cent for next two years
• State pension to increase by £5.30 in 2012 to £107.45
• £1 billion finance scheme for medium-sized firms
• £1 billion scheme to support six-month work placements for 410,000 young people
• £1.2 billion additional capital spending for schools
• Mortgage guarantee scheme to help 100,000 buy homes
• £5 billion to be spent on infrastructure over next three years