Local government is expected to freeze council tax in return for protection from additional £2bn cuts to Whitehall budgets over the next two years, chancellor George Osborne warned in today's Autumn Statement.

Addressing the House of Commons this morning, the chancellor said the measures he announced would be fiscally neutral across the whole period.

‘We need a government that lives within its means in a country that pays its way in the world,' Mr Osborne said.

He claimed hard evidence showed that the Coalition's economic plan was working. 

But Mr Osborne warned although the deficit was down, it was still too high, necessitating further difficult decisions.

A gleeful Mr Osborne pointed to latest forecasts from the independent Office for Budget Responsibility (OBR) indicating predictions for economic growth this year had more than doubled from 0.6% to 1.4%.

Growth predictions for 2014 were raised upwardly from 1.8% to 2.4%, Mr Osborne announced – growth figures he claimed were the largest improvement to any Budget or Autumn Statement for more than 40 years.

Employment was at an all time high, Mr Osborne stated.  He added that the OBR had revised forecasts upwardly from no change in levels to 400,000 more people in jobs this year.

The chancellor announced the OBR had predicted this trend would continue with 3.1 million jobs crated by 2019 more than offsetting the estimated 1 million headcount reductions to the public sector headcount.

Mr Osborne also announced underlying public sector net borrowing forecasts had been revised substantially downwards, by some £73bn by 2019/20 – the equivalent to £2,500 for every household.

‘The Government will not have to borrow anything by 2019, instead we will have a cash surplus,' Mr Osborne said.

However, he struck a note of caution that the forecast for a continued fall in the structural deficit had not improved and that stronger economic growth was not enough to improve public finances.

The chancellor announced three steps he said would entrench sound public finances.

Firstly, he promised to introduce a new charter for budget responsibility to ensure Parliament was committed fiscal consolidation, ensuring debt would continue to fall as a proportion of GDP.

He then announced plans to introduce a cap on overall welfare spending, which would however exclude the basic state pension and jobseekers allowance on a cyclical basis.

But he pledged housing benefit and other benefits would be included within the cap on Annual Managed Expenditure.

According to the chancellor, the welfare cap would be set at the start of each Parliament and a vote would be held were it to be breached.

As a final measure, he pledged to make a further £3bn cut in departmental spending over the next two years. 

Two-thirds of this would come from the annual running budgets of Whitehall departments – which he said had delivered £7bn underspends this year due to good financial management - over the next two years. The final share would come from reducing contingency reserves by £1bn.

NHS, schools, and police budgets would be protected from the further cutbacks, as would local government, Mr Osborne announced.

However, he then added that the protection had been extended to local government because the Government expected them to freeze council tax levels next year.

Among a restatement of yesterday's list of infrastructure announcements, Mr Osborne pledged to make a £1bn loan to unlock housing in Leeds, Manchester and other parts of the country.

He also announced the Housing Revenue Account borrowing limit would be increased by £300m to councils.

Councils would be expected to dispose of their most expensive social housing properties and working people in social housing would be given priority to move if it helped them secure work.

As anticipated, the chancellor extended business rates relief to small firms for another full year until 2015 and to cap business rate increases by 2% from next April.  He also vowed to change rules to help small firms expand their premises, to let businesses pay their business rates in 12 monthly instalments and to end a backlog of valuation appeals by July 2015 – ahead of a 2017 revaluation exercise.

He also announced from next year all premises with rateable value of less than £50,000 would receive a discount of £1,000 from their bills – a measure he said would help small shops and pubs.

Mr Osborne also announced changes to planning rules to help town centres compete with internet retailers.  Vacant shops would be helped to reopen through new reoccupation relief that would halve rates for new occupants, he stated.