Austerity measures are to be extended for a further year to 2018, Chancellor George Osborne has announced, as Britain's faltering economy goes into reverse.
In a bleak autumn statement to the House of Commons, the Chancellor announced a £3.7 billion squeeze on welfare and a £1 billion raid on the pensions of the wealthy, as he admitted that the nation's deficit will not be eliminated until well into the next Parliament.
He sought to sweeten the pill by scrapping a planned 3p-a-litre rise in fuel duty which had been due to come in January, cutting corporation tax by 1% and introducing changes to tax thresholds which will see earnings below £9,440 taken out of income tax altogether.
But he was forced to admit that the independent Office for Budget Responsibility now believes he will miss his target for debt to start falling as a proportion of GDP from 2015/16 - the year of the next general election.
The OBR downgraded its forecasts for GDP growth in each of the next five years, predicting that the economy will shrink by 0.1% in 2012, rather than growing by 0.8% as they expected in March.
On his other key target, Mr Osborne was able to boast that the state deficit will fall in each of the next five years. Having inherited borrowing of £159 billion in 2010, the coalition Government has brought it down to £108 billion this year, forecast to drop further to £99 billion next year and £31 billion by 2016.
But Labour said the Chancellor was only able to declare good news on borrowing because his figures include an expected £3.5 billion windfall from the auction of 4G telephone spectrum, even though it has not yet happened. Treasury aides said that this was a decision made by the OBR.
Shadow chancellor Ed Balls said that the OBR forecasts revealed "the true scale of this Government's economic failure" and showed that the UK was "falling behind in the global race" as a result of Mr Osborne's stewardship of the economy.
TUC general secretary Brendan Barber said: "When you are self-harming you should stop, not look for better sticking plasters. With the economy still scraping along the bottom, unemployment set to rise and the Chancellor missing his own debt target, we need a fundamental change in direction, not more muddling through."
But the Chancellor told MPs: "It's taking time, but the British economy is healing." And he added: "Yes, the deficit is still far too high for comfort. We cannot relax our efforts to make our economy safe. But Britain is heading in the right direction. The road is hard but we're making progress."