Wednesday, 5 December 2012

Autumn statement, 2012

George Osborne, Chancellor of the Exchequer, has just delivered his autumn statement to the House of Commons. In it he revealed that he will fail to reduce our national debt during this parliament as promised but will hand over a few early Christmas presents to mollify us.

Let us start by looking at his growth forecasts....
                
                    Today          Budget in April
    2012/13         -0.1%           +2.0%
    2013/14         +1.2%           +2.7%
    2014/15         +2.0%           +3.0%
    2015/16         +2.3%           +3.0%
    2016/17         +2.7%           N/F
    2017/18         +2.8%           N/F

It is pretty clear that there has been a massive downgrading of expectation at HM Treasury. By now we were supposed to be in the foothills of a steep growth mountain, but instead we are still mired in the valley of recession.

So we might expect borrowing to be shooting up well. But these numbers are a little perplexing...
                
                    Today         Budget in April
    2012/13         £108 bn       £120 bn
    2013/14         £99  bn       £98  bn
    2014/15         £88  bn       £75  bn
    2015/16         £73  bn       £52  bn
    2016/17         £49  bn       £21  bn
    2017/18         £31  bn       N/F

He is claiming that borrowing in the year will actually be £12bn less than he predicted nine months ago back in April. That is weird. Most economists are scratching their heads wondering how that is going to happen. He has factored in a little boost of £3.5bn he is going to get by selling off the 4G radio spectrum to the mobile phone companies - to be sold by an auction which has not yet happened! - so chicken counting going on here, but it's not clear why the borrowing will be so significantly below expectation. Doubtless this will become clear in the next few hours or days. However after this year and next it seems borrowing will exceed forecast (who would have guessed that?!)

The previous plan for the deficit to hit zero in 2017/18 has been jettisoned. There is now no forecast for when we will start making inroads into our one trillion-pound-plus national debt.

The bad news disposed off, Osborne went on to deliver the good: he is going to fund the construction of 100 new schools, an extension to the Northern Line in London, ultra-fast broadband in ten cities and 120,000 new houses.

Also good news for tax payers: benefit increases will be capped below inflation at 1% and government departments will also have cuts to their budgets. The only exception will be HMRC which will be expected to claw extra taxes from people who have stashed money abroad. He thinks Swiss bank accounts should be good for £5bn over the next 6 years. He intents to enact some general "anti-abuse" measures. Since no-one has ever passed a law stopping people from exploiting tax loop holes before, this will be impressive. We have to hope there are no loopholes in the anti-abuse measure itself.

The income tax basic allowance is to rise more than expected, to £9,440 in April 2013. The ISA contribution allowance will increase to £11,020. Corporation tax is to fall to 21% from April 2014 (not much use to Amazon or Starbucks!) It was due to fall to 22%. And then with a bit of a fanfare Osborne announced that the 3p per litre fuel tax rise due for January is cancelled; much cheering from government benches.

The mooted mansion tax was kicked into the long grass - cue grimace from Nick Clegg. However there will probably be some changes to how property owned by companies is taxed in the small print of the statement (the Treasury already leaked this.)

And that was pretty much it. Ed Balls got up to respond for the opposition but fluffed his lines, got confused between debt and deficit and generally failed to make any impact. His one good line was, "the chancellor promised he would not waver - he's not wavering, he's drowning!" Other than that he was repetitive and slightly off-topic since he had obviously written his 'response' before hearing the statement itself. Milliband fed him lines from behind but he did not use them.

In summary, we have a disappointing economic situation but nothing we were not braced for. We have a mysterious undershoot in the borrowing numbers, which of course are still only an estimate. We will have to wait for next year's budget to see the out-turn. On the plus side we have various minor tax cuts. (These days it seems cancelling a planned tax rise counts as a tax cut, at least if you judge by the cheering.)

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