Autumn Statement: A wintry statement of reality

 

In a strange way, George Osborne came out of last year's Autumn Statement fairly well. It was the economy and the public finances that got hammered, by the Office for Budget Responsibility's gloomy re-assessment of the UK's room for growth.

Unfortunately, it looks as though the OBR will have more bad news for us on Wednesday.

How will that work out for the chancellor this time? Last year he could say it was bad news, but he was taking it on the chin. That wasn't so great, but it was a lot better than the story on Budget day five months later, when there was not much economic news to report, but plenty of small-scale moves to raise money, which were later felt to have been half-baked.

Growth forecasts

For better and worse, tomorrow is likely to feel more like the Autumn Statement than the Budget. The focus will be on the OBR's new forecasts for the economy and the deficit, and the implications for Mr Osborne and all of us.

What is the Autumn Statement?

Autumn leaves
  • One of the two major statements the Treasury has to make to Parliament every year
  • Since 1997 the main Budget - which contains the bulk of tax, benefit and duty changes - has been in the spring before the start of the tax year in April
  • The second statement has tended to focus on updating forecasts for government finances
  • Over the past few years this distinction has become blurred, with the Autumn Statement becoming more of a mini Budget
  • Under the last Labour government it was called the pre-Budget report

We know one big piece of old news on Wednesday will be that the economy has once again failed to deliver.

At the time of the Budget the OBR was hoping for 0.8% growth in 2012 and 2% in 2013. The consensus among independent forecasters is now that the economy will shrink slightly, by 0.1%, in 2012 and rise by just 1.2% in 2013.

Another related piece of bad news is that the OBR might well have told the chancellor he needs an eighth year of austerity, in 2017-18, to get rid of the structural current deficit. (That's the measure he has focused on, which covers borrowing that is not for investment and not considered to be a temporary effect of slow growth.)

The fiscal mandate Mr Osborne set himself in June 2010 stated that he had to get rid of the deficit on that measure in the space of five years. But happily, the rule didn't specify which five years. Last year he had to say it would be the five years starting in 2011. We may find this week that the clock has been re-set again, to 2012.

As you probably know by now, the second rule Mr Osborne set himself does not have the same wiggle room, because it also contains a firm date.

It says that net debt as a share of the economy has to be falling in 2015-16. There are very few people left in the world who think that it will, or at least not without aggressive new cuts or some very creative accounting.

It will clearly be bad news for the chancellor if he has to abandon such a key target - bad news which the shadow chancellor, Ed Balls, will be keen to exploit.

But George Osborne has two massive advantages in trying to explain away this bad news which are hard for his opposite number to match.

The first advantage is that the squeaky clean and independent OBR is likely to give him a good alibi. The OBR will say the chancellor is finding it harder to get a grip on borrowing and debt because of the state of the economy, not because of any backsliding on the austerity measures themselves.

Ed Balls, the National Institute for Economic and Social Research and some others think the weak state of the economy is partly Mr Osborne's fault, or at least something he ought to have taken more account of in drawing up his original plan.

The eurozone crisis, for example, was already in full swing in the summer of 2010. The OBR does not agree.

In the OBR's view, the lesson of the past two years of disappointments is that the financial crisis did more damage to the economy than we thought, and the eurozone crisis and rising energy and food prices have done more damage on top of that. Its director, Robert Chote, does not seem to think the past two years casts any doubt on Mr Osborne's original plans, which, of course, the OBR endorsed.

Start Quote

Despite everything, despite the expected poor figures, the extended austerity, the potentially missed targets, the chancellor's strategic aim will be to convince voters that everything is still on track and they should keep a-hold of Nurse Osborne's hand”

End Quote

Mr Osborne's second big advantage is that many of the distinguished outsiders who backed his "consolidation in one parliament" plan in 2010 have now said publicly it makes sense to ease up.

Sir Mervyn King, the Bank of England governor, said that it would be acceptable to abandon the debt rule.

The International Monetary Fund has gone further. It has said it would be a mistake to impose costly new budget cuts before 2015 simply to meet the rule, and if the bad news continues, the chancellor could well need to cancel some of the squeeze that is in store for 2013.

But, in case you're wondering, the IMF doesn't think any of this casts doubt on Mr Osborne's original plan either. Some of her staff might think differently, but the managing director Christine Lagarde has said the Fund was right to support a five-year plan in 2010 - just as it is right, now, to support a slower one.

So, we will have plenty of theatre over Mr Osborne and his rules, and probably some tricky implications for future budget policies, including more detail on how the post-2015 austerity, which was flagged last year, will be divided across tax rises, welfare cuts and further cuts for government departments.

The big thing to remember is that this is an austerity programme which is not even half way through.

Of the £155bn in austerity measures now planned by 2016-17, only £59bn will have come into force by the end of this fiscal year. Nearly all of that £59bn has come through tax rises and cuts in investment. The squeeze in spending, on that measure, has barely begun.

In a sense, we already know what the story will be from the Autumn Statement. But for the chancellor - and his opponents - a great deal will depend on the telling.

 
Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    -1

    Comment number 57.

    I think he feeling on the street is that we are in for a few years more of austerity.
    Whether we will ever recover from the mess left by La La Labours incompetence and fiscal voodoo, time will tell. I suppose it will be decided upon on how foolish we are at the next election. Labour will lie to get in power again which will lead us down a road to perminent poverty

  • rate this
    +2

    Comment number 56.

    @52. BLACK_PEARL
    "Didn't Darling state in his book that Labours Budget plan if they got back in was 98% the same as what the Tories are doing ?"

    Unfortunately, Labour will carry on with their bashing, yet come up with no alternatives.

    Balls says he will cut the deficit. Asked how he says "we will cut the cuts"

    No Ed, thats not cutting the deficit. So they ask him again and....silence!!!

  • rate this
    +8

    Comment number 55.

    I don't know why anyone believes or even half believes govt predictions about growth, unemployment, etc. Even the most knowledgeable and perspicacious economists in the world (if such a being exists) don't know.

    I suspect things will get a LOT worse before they get any better (and in fact I think they have to). And I think the govt's only real wish is that it doesn't happen on their watch.

  • rate this
    +3

    Comment number 54.

    Osbornes OBR is clearly not independent. Their predictions have been as wildly wrong as Gordan Browns! They had originally predicted 2.5% growth this year, instead we have had a 9 month recession.

  • rate this
    +8

    Comment number 53.

    What is telling is inflation still greater than 2% target even after the CPI/RPI massaged downwards and wages still lagging !
    Payday loans symptomatic of squeeze on low/medium incomes. The 1% having all the cash does unbalance the economy!
    No economic change until these problems addressed using inflation to decrease debt only works if you keep ahead with greater increases in pay/taxes unlikely!

  • rate this
    0

    Comment number 52.

    My the Labour lovies are out on the streets.
    Didn't Darling state in his book that Labours Budget plan if they got back in was 98% the same as what the Tories are doing ?

    Suppose the economy is like a marrage with no money bitch bitch bitch..

  • rate this
    +2

    Comment number 51.

    @48.Happiness is destroying the world for an Ipad
    "UK total debt is MORE than before austerity cuts were implemented"

    That was always going to rise sharply for a number of years as its a direct knock on effect of the deficit

    If you look at the start of the steep incline in debt, it started at the end of 2007. Thats why even Blair admits that they should of started reducing the deficit in 2005

  • rate this
    0

    Comment number 50.

    39.Dream
    Welfare has been underfunded for decades and we should be spending more on it
    ***
    So how would that be funded then ?

    49.Whistling Neil
    34 No they didn't - it was 10.3%. It didn't hit 20% until March 1980, and didn't fall below the figure they inherited until 1982?

    Ah right .. couldn't remember exactly was long ago.
    Just remember the 20 odd % inflation rate

  • rate this
    +1

    Comment number 49.

    34 No they didn't - it was 10.3%. It didn't hit 20% until March 1980, and didn't fall below the figure they inherited until 1982?

    There was a reason they were one of the most unpopular governments ever by the mid first term.
    The price of that was for a government elected with the slogan Labour isn't working - unemployment rose for 5.5% to over 10% - and never ever got below the inherited level.

  • rate this
    +1

    Comment number 48.

    What a conumdrum, halfway through this parliamernt term & UK total debt is MORE than before austerity cuts were implemented, so we have had agressive cuts, frail pensioners thrown out of homes, NHS waiting extended, high street shops abandoned and NO progress, & not even a glimmer of a light at end of Osbornes tunnel, which if you look properly, isnt a tunnel, its a grave & getting DEEPER.

  • rate this
    +1

    Comment number 47.

    I know this comment is not particularly relevant to the British economy, but it is a question of "RESPONSIBILITY" in socio-economic terms. Does Stephanie think Europeans or British or Americans behave more responsibly in economic terms as a population? My own assessment of the pecking order is Europe Japan China Britain Canada Australia USA Argentine.

  • rate this
    -3

    Comment number 46.

    39.Dream
    34.BLACK_PEARL
    It's a fallacy that Welfare Benefits are enough to live the Life of the proverbial Reilly on, and probably a fallacy that u r intimately acquainted with your Relatives' Income and Expenditure. Welfare has been underfunded for decades and we should be spending more on it.
    *****
    Just telling it how it is or was...
    If you refuse to believe it.. its our choice

  • rate this
    +2

    Comment number 45.

    Rich richer and poor dead?
    News ?

  • rate this
    +2

    Comment number 44.

    Real policies to balance the budget are simply not forthcoming. Next year net immigration is predicted to be 190,000. But we have no jobs and millions unemployed so the maths says these people have to add to the burden on the benefit system. Get that sorted George and David.
    I could solve this problem in a day if I were in charge.

  • rate this
    -2

    Comment number 43.

    I've been pleasantly surprised by the OBR's teeth. I had thought it would be just another part of the Oxbridge establishment, stuffed with chinless wonders who were at school/university with the govt chaps, and therefore compliant.

    But no! It shows that the UK has a genuinely independent civil service. Contrast the US, with its politicized federal agencies.


    Well done, OBR!

  • rate this
    +1

    Comment number 42.

    Politicians can't get away from the electoral cycle can they? Osborne had to say it will all come right by the next election to keep his side happy. Anybody with an interest in a century's worth of booms and busts would know that the average recovery from a financial bust is 7 years, and this one's a doozy, so you can add another 12 months. That makes it 2016! At the earliest, euro permitting.

  • rate this
    +6

    Comment number 41.

    no mention about how the QE robbery of the BoE funds will have a positive impact but will have to be funded by the taxpayer in the future?

    No positive hopes from this goverment or probably any goverment.

    They only know how to retain the status quo and tax low/middle incomes.

    No mention of
    -increasing the 45% to 50%
    -taxing wealth equally to income
    -Stopping uk housing high rents crisis

  • rate this
    +1

    Comment number 40.

    If only we learned from Keynes, we could borrow our way out of this, create jobs and get the economy growing again. Cobblers. At the time of the great depression, public spending was a tiny proportion of what it is today, so the same remedy won't work. We all need to borrow less. Once that truth has been understood and applied, we can move towards sustainable spending.

  • rate this
    0

    Comment number 39.

    34.BLACK_PEARL
    It's a fallacy that Welfare Benefits are enough to live the Life of the proverbial Reilly on, and probably a fallacy that u r intimately acquainted with your Relatives' Income and Expenditure. Welfare has been underfunded for decades and we should be spending more on it.

  • rate this
    +1

    Comment number 38.

    Much is being made of corporation tax but this has always been more of a loan to the taxman to be repaid when a company makes a loss hence the loss of revenue from the banks etc.

    Many companies will be claiming tax from previous years in current conditions which isn't going to help GO much so can't wait for the next deck of cards he deals.

 

Page 10 of 12

 

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