David Cameron – freshly back from his trade mission to China – looked on encouragingly as Chancellor George Osborne delivered his Autumn Statement. But how his mind must have drifted back to the delights of Shanghai… No inconvenient elections; no opinion polls; no awkward questions from Jeremy Paxman.
With one pundit describing the Autumn Statement as being “1% economics and 99% politics”, it was hard to escape the feeling that George Osborne had at least one eye on the election in May 2015, especially with so many measures being introduced just a month earlier, next April. But the realities of the world economy mean that his room for manoeuvre is still limited and the Autumn Statement was broadly neutral, giving in some areas and taking away in others. You may need to wait for next year for the pre-election handouts.
Most economic commentators were happy with the measures the Chancellor announced: they were deemed prudent, sensible and likely to contribute to Britain’s gradual recovery. But whether the electorate would see a further round of cuts in budgets and services, remained very much open to doubt.
It was a Labour politician, Denis Healey, who delivered the first Autumn Statement, in 1976. Previous Chancellors had relied on just the one set piece speech each year when they presented the Budget. But the Arab oil embargo and subsequent oil price shock of the mid-1970s brought the realisation that rather more tinkering with the economy might be necessary – and we’ve had the Autumn Statement ever since.
So it was that George Osborne rose to speak at 11:15am on Thursday, December 5th 2013.
As usual, the speech had been well-trailed and the good news for the Chancellor was that the currency markets had responded positively. Sterling rose to a five year high on expectations that Osborne would use the Statement to raise growth forecasts for the UK.
In the event, he predicted growth for this year of 1.4% with 2.4% expected in 2014: this is a significant improvement on the March Budget, when there were real fears about the UK slipping back into recession. “Responsible recovery” was the phrase that came ready-made for the following day’s headlines, with Osborne insisting, “The hard work of the British people is paying off and we are not going to squander their efforts.”
Growth for the subsequent years was predicted to be 2.2% in 2015, then 2.6% in 2016 and 2.7% in both 2017 and 2018.
As if that wasn’t enough, the Chancellor claimed that Britain was “growing faster than any other major economy.” The Office for Budget Responsibility confidently predicted that in contrast to Britain, Eurozone GDP would shrink by 0.4% in 2013.
The Autumn Statement 2013 sets out the next steps in the Government’s long-term economic plan:
- Supporting businesses to grow and create jobs through a major package of support with the cost of business rates and an updated National Infrastructure Plan
- Equipping all young people to compete in the global economy by abolishing employer National Insurance contributions for most under-21 year olds, removing the cap on university places, reforming apprenticeships and improving basic skills training
- Helping people to keep more of the money they earn by reducing the impact of government policies on energy bills and freezing fuel duty for the rest of the Parliament
- Increasing the incentives to work and providing a benefit system that is fair to those who need it and to those who pay for it
- Clamping down further on tax evasion, avoidance and aggressive tax planning, ensuring that those with the most in society make a fair contribution to reducing the deficit
- Taking action to reduce levels of tax debt and to reduce fraud, error and debt in the benefit and tax credit systems
Debts, Deficit and the Wider Economy
George Osborne was eager to make the point that when the Coalition came to power the Budget deficit was 11% of GDP. The UK’s ‘underlying’ deficit – a measure that excludes the acquisition of the Royal Mail Pension Scheme and the effects of Quantitative Easing – has been revised down by the Office for Budget Responsibility (OBR). It was expected to fall to 6.8% this year, and 5.6% in 2014. Mr Osborne’s eyes lit up as he predicted that by 2018/19 there would be no deficit: instead, a “small surplus.”
Government borrowing is down more than forecast and the Chancellor claimed that the Government would meet its ‘fiscal mandate’ a year early. The Government will borrow £111bn this year, which is £9bn less than was forecast in March. Borrowing is expected to fall to £96bn next year, and then £79bn in 2015.
The Chancellor also announced that a new charter for budget responsibility would be introduced next year which would consider committing the Government to running a Budget surplus.
As was expected, the Chancellor announced that the Government’s contingency reserve will be reduced by £1bn this year and departmental budgets by a similar amount over the next two years. The NHS, schools, local government and the security services are exempt from these cuts, leaving the remaining Government departments to have the now traditional pre-Christmas squabble.
It had originally been thought that there would be no increase in jobs this year, but the OBR has now stated that the total number of jobs will rise by 400,000 this year and 3.1 million jobs are predicted to be created by 2019.
Unemployment is forecast to fall from 7.6% to 7% by 2015 and to 5.6% by 2018. Private businesses, the Chancellor announced, are expected to create 3.1m more jobs by 2019 which will more than offset the continuing reductions in the public sector workforce.
In a bid to tackle the youth unemployment that is such a widespread problem in Europe, the Chancellor announced that employers’ national insurance contributions will be removed on workers under the age of 21 – this will affect 1.5m jobs. There will also be continuing funding for Job Centres to help 16 and 17 year olds find apprenticeships, with HMRC directly funding employers for apprenticeships.
The Chancellor announced a number of measures to help business, in particular, the beleaguered British high street.
There will be a new ‘reoccupation relief’ to encourage the use of vacant town centre shops, halving the business rates for new occupants.
There will also be an additional 50,000 start-up loans for entrepreneurs and an extension to the new Enterprise Allowance.
Export finance capacity available to support British businesses will be doubled to £50bn.
Probably the most important measure, though, was the announcement of the extension to the small business rate relief scheme for an additional year, from April 2014. In addition, increases in business rates will be capped at 2% from 2014 and businesses will be allowed to pay their rates in 12 monthly instalments.
Benefits, Pensions and Welfare
In perhaps the most widely-trailed part of the speech, it was announced that the state pension age would be significantly increased. With life expectancy now rising significantly, George Osborne announced that the pension age would now be linked to life expectancy, with the expectation being that today’s children would spend one-third of their adult life in retirement. Simple calculations suggest that this will mean working until they reach the biblical allotment of ‘three score years and ten.’
Some estimates suggest that this move could save £500bn over the next 50 years. The Government has already announced plans for the pension age to rise to 66 in 2020 and to 67 in 2028 but this reform goes much further, with many commentators describing it as one of the most far-reaching changes since the introduction of the state pension in 1908.
|What||The state pension will rise by £2.95 per week. Pensioners will also be given the chance to make voluntary national insurance contributions to boost their retirement income.|
|When||From April 2014|
|Comments||George Osborne claims that the increase means pensioners are £800 per year better off since 2010. Cynics might well argue that pensioners – many of whom are among the new “fuel poor” have been the hardest hit by rising energy bills, with the £800 all but swallowed up by the cost of keeping warm.|
|What||There will be a new cap on total welfare spending introduced next year. This will not include the state pension or the ‘most cyclical’ job seeker benefits.|
|When||The precise limit will be set in the spring of 2014 and the cap will be imposed a year later.|
|Comments||Good to see accountability imposed. If the limit is breached, the Chancellor will have to explain why and a vote would be held in Parliament.|
|What||The Chancellor cancelled next year’s planned rise in fuel duty, which would have added 2p a litre to petrol.|
|Comments||According to the Chancellor this means that petrol will be 20p per litre less than under Labour’s plans. Whatever the political arguments, anything that reduces the cost of filling your car up has to be welcomed.|
|What||Plans to increase train fares by 1 per cent above inflation from January have been cancelled, so they go up in line with inflation. The permitted ‘flex’ above the overall cap on average rail fares will be reduced by 2 per cent.|
|Comments||Train fares will now only rise in line with inflation, which perhaps merits two cheers. Only the overcrowding to deal with now…|
Taxes and Allowances
|What||There will be a new, £1,000 transferable tax allowance for married couples, which will then be increased in line with the personal allowance.|
|When||From April 2015|
|Comments||Again, this was one of the Budget measures that was widely trailed and while critics will claim that it doesn’t go far enough, the Chancellor can claim that he has at least made a start in tackling what many of his supporters saw as an injustice. George Osborne described the move as “only the beginning.”|
|What||Capital Gains Tax will be imposed on foreign owners selling UK homes, in a bid to prevent a housing bubble, especially in London and the SE.|
|When||From April 2015|
|Comments||Again, it has been seen as ridiculous that a UK citizen selling a second home should pay Capital Gains Tax whilst a foreign national doesn’t have to, irrespective of how many homes they may own in the UK. This measure seeks to tackle that and will, in theory, raise additional funds for the Government.|
|What||ISA, Junior ISA and Child Trust Fund annual subscription limits to rise in line with CPI. The 2014 – 2015 ISA limit will be increased to £11,880 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840.|
|When||From April 2014|
|Comments||As an attractive saving option, this is considered a positive move by the government.|
|What||The popularity of Retail Bonds was acknowledged in the Autumn Statement with the Government exploring the number of Retail Bonds eligible for ISA investment.|
|Comments||ISAs are noted as a tax efficient way of saving. This will mean Retail Bonds with maturities of less than five years could soon be included in stocks and shares ISAs.|
|What||The amount that employees can save every month in a Save As You Earn scheme has been doubled to £500. Share Incentive Plan annual limits will increase to £3,600 p.a. for free shares and to £1,800 p.a. for partnership shares.|
|Comments||A positive saving incentive for employees who are part of these schemes.|
|What||The Government will offer free school meals for children up to the age of seven (that is, in reception and years one and two), a move announced by Nick Clegg at the Lib Dems party conference, which is expected to cost £1bn over two years.|
|When||‘As soon as possible’|
|Comments||This is confirmation of the Government’s oft-stated view that good nutrition and good education go hand-in-hand.|
|What||The Chancellor also announced that another 30,000 university places will be available from next year and that the cap on student numbers will be abolished from 2015.|
|When||From next year, with further measures in 2015|
|Comments||A move which is probably designed to allow universities to increase their revenues by recruiting more foreign students. With many British universities continuing to do well in the world league tables – and keen to recruit the brightest foreign students to protect those rankings – this move will please Vice-Chancellors, the Government and operators of airport departure lounges.|
|What||Job seekers aged 18 to 21 without basic maths or English will be required to undertake training in these skills or lose benefits. Requirement for Job seekers aged 18 to 21 to start traineeship, work experience or community work after six months or lose their benefits.|
|Comments||A positive move aimed at getting the jobs market moving amongst the younger generation.|
The Bank Levy
|What||The rate of the bank levy will rise to 0.156%|
|When||From January 1st 2014|
|Comments||This move is expected to raise 2.7bn in 2014/15 and around £2.9bn per year from 2015/16.|
Those were the main points of the Chancellor’s Autumn Statement and, as noted above, most commentators were broadly supportive. There is no doubt that Britain is recovering from the worst of the recession and the global economic crisis, albeit slowly. The Statement was broadly neutral, and very much in line with the Coalition’s ‘responsible recovery.’
It was welcomed, as you might expect, by the British Retail Consortium and it was attacked, again unsurprisingly, by Shadow Chancellor Ed Balls, who accused the current Chancellor of “economic complacency.”
Whilst there were no real out-and-out ‘winners’ and ‘losers’ from the Statement, you could say that it was a good day for married couples, especially those with children under 7. Other measures, such as the removal of the extra 2p on a litre of petrol, may not make such a significant difference to people’s everyday lives.
Young workers were arguably the main losers, as they face having to work for much longer to receive their state pensions. Similarly, the Statement was not good news for foreign property owners but, with the Capital Gains Tax not being introduced immediately, you suspect that many may take advantage of the delay to re-arrange ownership of their properties.
The BBC’s political editor, Nick Robinson, characterised it as a ‘good news, bad news’ Autumn Statement. The Government have a ‘long term plan’ for the economy (expect to hear plenty more of that phrase between now and May 2015) and the Statement was very much part of that plan. The UK economy, whilst recovering, remains vulnerable to any new downturn in Europe and the wider world, and the Chancellor is clearly not going to put what has been achieved so far at risk.
He knows that the votes will not be counted until May 2015 and a lot of water will flow under the bridge before then. For now, the UK economy is steadily recovering: a broadly neutral Autumn Statement with a few hints of better things to come was exactly what the Chancellor wanted to deliver, and that’s precisely what he seemed to do.
Source: Her Majesty’s Treasury (HMTreasury) 2013 Autumn Statement