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

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  • rate this
    +2

    Comment number 237.

    @236. Dandalf

    Big firms to fail, how about:

    Comet
    Woolworths
    MFI
    Habitat

    Whilst I agree entirely that no business should be too big to fail, at the time the damage that RBS would have caused far outweighed what it cost to save.

    Think of all the people who's savings would have vanished overnight. Peoples debt would have been bought by a rival, but anything else would have vanished.

  • rate this
    +1

    Comment number 236.

    In ancient times, during times of scarcity a sacrifice would be made to appease the gods... but our government wasn't even willing to sacrifice a dying bank... big business is strangling our economy we need some big firms to fail! After all in the forest when a big tree falls it leaves a space for a multitude of smaller plants to grow in the light...

  • rate this
    +1

    Comment number 235.

    Straight from our idiot chancellor "1258: The share of national income spent by the state to will fall from 48% of GDP in 2009/10 to 39.5% in 2017/18, George Osborne says."

    So where's any growth coming from. This is ideology gone mad coming from the looney right. He needs locking up!!

  • rate this
    +2

    Comment number 234.

    @229. Tchernobog

    I work in the IT sector and have done for 20 years. There are plenty of very well paid roles, providing you are qualified and experienced......what's wrong with that ?

    As for India.....yes there's outsourcing, but not for core architecture, design and infrastructure positions.

    There are many places that take on 1st line people without experience, what more do you want ?

  • rate this
    -1

    Comment number 233.

    Quote // 221. MilesTegg
    Dear Spindoctor, what an apt pseudonym.
    Nobody long term unemployed should be above any job.//

    At what point did I state my son was above doing the Job?

    I pointed out that for someone with a degree to take a part time cleaners job is a waste, as for him being long term unemployed?

    You are making an assumption he has been out of work 6 weeks, and DOES NOT get Benefits

  • rate this
    -1

    Comment number 232.

    231.Bigry
    OK. Try and get a job as a cleaner that will pay you a living wage. But I'd be amazed if you got the job in the first place. That's why we have uncontrolled immigration - to undercut wages and destroy labour rights.

  • rate this
    0

    Comment number 231.

    @221. MilesTegg

    Very well said...!

  • rate this
    +1

    Comment number 230.

    Amend British Law so that UK courts can impose the kind of hundred million or multi-billion fines US courts impose on FOREIGN corporations. Currently, British courts wouldn't impose fines on that scale no matter how many died or how extensive and grave the environmental damage was claimed to be. A million Pound fine is unusually large in the UK.

  • rate this
    +1

    Comment number 229.

    221.MilesTegg
    I should probably add that the computing industry has been dead in the UK for years as a result of outsourcing to India. This policy, pursued by both Labour and the Tories, has destroyed a generation of UK talent. Ridiculous demands are made on new graduates such as Certifications and previous jobs, because employers are unwilling to train. Are you proud of that? Do you care?

  • Comment number 228.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 227.

    From his astonishingly dismal performance as a chancellor I can only assume that Osbourne must have a dammed good arm twisting technique regarding his boss Cameron for him to continue in his post for so long after proving time after time that he doesn't really have a clue about how the economy works, let alone how to repair it!

  • rate this
    +3

    Comment number 226.

    @215. AndyC555
    So you've organised your affars to have no taxable income and say it's right that you pay no tax.

    I organise my client's affairs so they have no taxable income and so pay no tax, you think that's wrong.

    Very revealing.

    //

    The difference is my money has been taxed already under PAYE rules, your "clients" are avoiding tax hence they have untaxed money.

    That is the difference.

  • rate this
    +2

    Comment number 225.

    221.MilesTegg
    The cleaning jobs to which Spindoctor refers are almost exclusively taken by immigrants. Employers in Manchester interviewed by Ch4 news last night expressed their unwillingness to "bridge the gap" i.e. train young people for the jobs school and college leavers desperately need. It is unpatriotic in the extreme to consign youngsters to the scrap heap and employ immigrants instead!

  • rate this
    0

    Comment number 224.

    212. BusyP Disagree printing money creates hyperinflation is almost propagandaish. Inflation is about supply/demand. With zero demand in economy you need to stimulate it by the controlled of printing money invested in key infrastructure to create jobs and improve the productivity of UK. When inflation become a problem tax to take the money out of the economy.

  • rate this
    +4

    Comment number 223.

    We seem to be following Greece with crippling austerity measures for us plebs and tax avoidance/vulgar luxury as usual for our lords and masters.
    If the gov't fail to address the public's dissatisfaction with this they may have to deal with similar consequences such as civil unrest and demonstrations.
    I guess they already know this and just like the Greek elitists simply don't care.

  • rate this
    +1

    Comment number 222.

    Bank of England got it wrong when they used Quantitive Easing. This will always fail when economies are in distress.

  • rate this
    0

    Comment number 221.

    Dear Spindoctor, what an apt pseudonym.

    The ability to blame the Tories for borrowing under labour, is an indication that your level of reasoning is coloured a little by class prejudice.

    As to someone with a 2:1 in Computer Science being above mopping floors, sorry I've a 1:1 in Computer Science & know that they come with the cornflakes.

    Nobody long term unemployed should be above any job.

  • rate this
    0

    Comment number 220.

    I heard that there would be some surprises in the statement I hope that might mean I can do something to improve my fixed income (little interest paid on savings) and pay less involuntary tax? I dont think I will be very surprised then.

  • rate this
    -1

    Comment number 219.

    Roll out a £Billion + House Building Scheme to build Social and affordable Housing, Roll out a £Billion + Road Building Scheme, Roll out a 3rd Runway at Heathrow, Build the next Generation of Nuclear, Build the new Gas Standby Stations, Open up the Gas Fracking markets in this country.
    Do it NOW tell the nimby's to shut up or shove off and the economy will BOOM!

    Unemployment = 0 in 6 months

  • rate this
    0

    Comment number 218.

    @ 209. Spindoctor

    Are you honestly saying that just because he had a private education and a privileged upbringing then he's 'inbred'...... Do you realise how bigoted that makes you look ?

    People have very little or no say in the way they're educated and raised, that's down to their parents.

    You certainly come across as somebody with a serious chip on your shoulder i'm afraid.

 

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