Budget 2013: Osborne aims to swing marginal seats with populist budget

An embattled George Osborne delivered government help for homebuyers, motorists and beer drinkers as he tempered fresh gloom on the economy with a populist budget that aimed to please swing voters in marginal seats.

Despite announcing a halving of growth to just 0.6% this year, the chancellor said money from pension reform, an extended public sector pay squeeze, underspending Whitehall departments and a fresh crackdown on tax avoidance gave him scope to deliver for an "aspiration nation".

After his "omnishambles" budget a year ago, in which most of the key details were leaked and the chancellor was forced into embarrassing U-turns on Cornish pasty and caravan taxes, Osborne received an early blow when the London Evening Standard tweeted a copy of its front page containing many of the budget's key elements before he gave his statement.

But he focused on mainstream crowd-pleasers such as 1p off a pint of beer, further freezes in fuel duty (representing £21.5bn in lost revenue over the parliament), and lifting the personal tax allowance to £10,000 a year, in addition to help with childcare announced earlier this week.

He also announced two schemes to boost the housing market, now seen as vital if the economy is to be growing strongly in the runup to the 2015 general election. The Treasury will provide £3.5bn over three years for shared equity loans to increase the sales of new homes, and will give mortgage guarantees to lenders to encourage them to lower the cost of home loans to all buyers.

The construction industry, badly affected by Britain's sluggish recovery from its longest and deepest postwar recession, gave the package a cautious welcome, although some property experts warned that the impact would be to drive up already high house prices. The Tories backed the measures with 50,000 leaflets to commuters saying the "aspiration budget" backed homebuyers, jobseekers, families, drivers and "Britain's hard workers".

Osborne responded to new forecasts for the Office for Budget Responsibility showing the UK barely escaping from a triple-dip recession by announcing a series of growth measures: a £3bn-a-year boost to infrastructure spending, a cut in corporation tax to 20% in 2015, and a £2,000-a-year cut in national insurance contributions for business.

"It's a budget for people who realise there are no easy answers to problems built up over many years," Osborne said. "Just the painstaking work of putting right what went so badly wrong. And together with the British people we are, slowly but surely, fixing our country's economic problems."

Liberal Democrat members of the coalition welcomed the announcement of the £10,000 personal allowance. Ed Miliband, the Labour leader, said the budget was the work of a "downgraded chancellor in a downgraded government".

Underspending by Whitehall departments this year allowed Osborne to say borrowing was on a downward trend, but the opposition seized on evidence that weaker growth is leading to higher annual budget deficits and a worsening debt outlook.

The Treasury will still be borrowing £61bn more to balance its books over the next six years than envisaged in last December's autumn statement and the national debt will only start to fall as a share of gross domestic product in 2017 – two years later than planned.

Miliband said: "The chancellor has failed the test of the British people – growth, living standards, and hope – but he's not just failed their tests; he has failed on his own as well. More of the same is not the answer to the problems of the last three years … Britain deserves better than this."

Some economists warned that Britain was on course to be downgraded by the other two credit rating agencies after being stripped of its AAA status by Moody's last month. Analysts are sceptical about forecasts that the economy's growth rate will pick up to 1.8% in 2014, 2.3% in 2015 and 2.7% in 2016. The OBR believes growth in earnings will rise from 1.4% this year to 2.7% next year and 3.6% in 2015.

Osborne insisted that the government would stick to its strategy, with tough deficit reduction action by the Treasury designed to allow the Bank of England to boost growth. He said his reforms combined monetary activism with fiscal responsibility and supply-side reform.

Changes to Threadneedle Street's remit were also signalled that will allow the Bank of England, under its new governor, Mark Carney, to continue stimulating the economy through low interest rates, quantitative easing and signals to the markets that there will be no early end to the easy-money regime.

In his fourth budget, Osborne admitted the economic plans made in 2010 were off course. He said: "Today, I'm going to level with people about the difficult economic circumstances we still face and the hard decisions required to deal with them. It is taking longer than anyone hoped, but we must hold to the right track. And by setting free the aspirations of the nation, we will get there."

He contrasted his cut in employer national insurance contributions with Labour's plans to raise them, scrapped by the coalition when it came to power. In the single biggest giveaway of the budget, Osborne said 98% of the benefit from the £1.25bn tax break would go to small- and medium-sized companies. A company could hire someone on £22,000, or four people on the minimum wage, and pay no jobs tax, he said.

Frances O'Grady, the TUC general secretary, said: "This budget is the wrong answer to the wrong question. We face a jobs, growth and living standards crisis, yet today's proposals are small beer that do little more than tinker at the edges."

John Cridland, director-general of the CBI, gave the package a warmer welcome. "The chancellor had a weak hand of cards and played them as well as he could in the circumstances," he said.

Matthew Pointon, property economist at Capital Economics, said: "We have long been of the view that house prices are unsustainably high, frustrating a generation of first-time buyers. Most would like to see house prices fall. It is not so clear they will welcome a government scheme that allows them to take on more debt."

Labour pointed out that new rules would cost workers now in contracted-out final salary schemes a total of £1.6bn in lost NIC rebates, and another £600,000 for employers.

The Treasury said that most public sector employees would benefit from the end of contracting out when the single tier pension is introduced in 2016. A source said that a 40 year old in 2016 on the median wage will pay an extra £6,000 in national insurance over the rest of their working life. In return they will receive an extra £24,000 on average in the state pension during their retirement.