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Last Updated: Tuesday, 9 October 2007, 17:08 GMT 18:08 UK
Harder times ahead for UK economy
Evan Davis
ANALYSIS
By Evan Davis
Economics editor, BBC News

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Household income is expected to grow more slowly, cutting spending
The chancellor, Alistair Darling, has announced in his latest pre-Budget report that the economy will slow next year, and that public borrowing will rise. So how will that affect the public?

A good question after any financial statement is: "Where's the money going?" Is it tax cuts or extra public spending?

Well, today - aside from direct beneficiaries of the inheritance tax measure - no-one will feel they are enjoying much of a boost.

Overall, there is a small tax rise, to allow a tough spending settlement to be a couple of billion pounds less tough than had been anticipated.

Public spending restraint

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Yet the settlement is still restrained by recent standards.

Delivering improvements in public services that keep up with rising aspirations will not be easy without vastly greater efficiency.

The public sector's pain will not be the private sector's gain.

According to the Chancellor's forecasts, private household incomes after tax will grow below 2% this year and next - well below the long-term average.

Private squeeze

NET PRE-BUDGET TAX INCREASES
Capital gains taxes: 900m
Aviation tax: 520m
Residence and non-domicile taxes: 500m
Reduced state second pension: 440m
Net tax changes by 2010/11; Source: 2007 pre-Budget report
So where is the money going? Well, as the economy is expected to grow more slowly, there isn't much extra money in the first place.

And most importantly, there are the borrowing figures, which are higher than most expectations.

That means any spare cash the chancellor gets as the economy grows has to be devoted to getting borrowing down.

It would be too much to say today's statement heralds the start of a big economic squeeze.

But it certainly appears to inaugurate a period of somewhat tougher times - in both the public and private sectors.

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