Autumn Statement: What has changed?

The Autumn Statement Did the chancellor have more room to manoeuvre

What has changed as a result of this Autumn Statement? The answer is nearly everything about Britain's economic and fiscal situation has changed, though not as dramatically as it did in the last one.

The only thing that hasn't really altered is George Osborne's basic approach. He's just halved the number of fiscal rules that he is going to abide by - from two to one.

For economists, the key change is to the Office for Budget Responsibility's (OBR) assessment of the economy, which I mentioned earlier.

Though it is more optimistic about the immediate room for growth, the OBR has revised down its growth forecasts for the next few years, and once again deferred the time at which we will get back to our long-term potential growth rate, which they now think will not happen until 2016.

The more transparent treatment of the net gains to the Treasury from quantitative easing make the picture brighter, but the underlying deterioration is there.

Grim years

For the ratings agencies, the OBR's re-assessment of growth is important, but also key is Mr Osborne's abandonment of his promise to have the debt ratio falling by 2015-16.

Fitch said after Mr Osborne's announcement that the government's policy framework had been a key factor helping the UK to hold on to to its top AAA credit rating, and the loss of the debt rule had weakened both the coalition's credibility and the rating.

What will everyone else take away from Wednesday's announcements? Behavioural economists say it's human nature to notice concrete losses more than gains forgone.

That might help the chancellor when it comes to some of the measures he has announced. But he can't get away from the fact that it's going to be a grim few years - a grim few years that he has decided he is powerless to confront.

Some businesses might see an absolute fall in what they pay in corporation tax in 2014. Or they will find, with the help of Mr Osborne's new £2bn investment tax allowance, that they can invest more cheaply than they did before.

The same is true of the individuals affected by the increase in the personal allowance - which, incidentally, the OBR says has put the government on course to achieve at least one of its targets. From now on Mr Osborne only need to increase it in line with inflation, in the usual way, for it to get to £10,000 by 2015-16.

So, these companies and individuals could well see a cash gain, as a result of the new measures.

It's true and important to note that many working households will see that gain offset, in reality, by the below inflation rise in tax credits. But tax credits will still go up, on the new plans. So will public sector pay. They just won't go up as fast as inflation.

In other words, a lot of the losers from today's measures are "real terms" losers, but they will not find that cash is being taken out of their pockets that they have now.

Politicians have been pilloried for drawing such a distinction in the past. Anyone concerned about the day to day needs of lower income households - and, indeed, most economists - would not think that it matters. However you cut it, these families are worse off than under previous plans. But for politicians and quite a lot of households, the difference between cash losses and real terms losses is, er, real.

Many of the benefit changes introduced since 2010 have or soon will cut households' income in cash terms. The changes to housing benefit and the benefit cap are the most obvious examples, or the removal of child benefit from higher income families.

By and large, the benefit and tax changes announced on Wednesday will not do that, though that will be cold comfort for the 400,000 extra people who will now hit the higher rate income tax threshold in 2014.

But, however those losses are ultimately perceived, it's probably not Mr Osborne that has done most damage to the prospects of ordinary households this week. It's the economy - or at least, the economy as viewed by the OBR.

As the Resolution Foundation points out, in its forecasts the OBR has once again put off the date at which average earnings will start to keep up with inflation, from the second quarter of next year until the second quarter of 2014.

At that point the median full-time wage will be 7.4% lower than it was in 2008 level. The Foundation reckons that the wages of someone in the middle of the income distribution in 2017 will still be lower than in 2000.

Positive difference

As I predicted earlier in the week, the OBR has given him this bad news, but it has also given the Chancellor a good alibi: it says the basic deterioration in Britain's economic health since 2010 is not his fault.

That is extremely helpful politically but it does raise the risk that he will seem to be the prisoner of events - holding on to his plans and the OBR's justifications, as the economic picture gets steadily worse.

As it happens, the OBR does think Mr Osborne made a positive difference to the economy with Wednesday's announcements. On balance, it thinks the chancellor has boosted growth between now and 2015 by 0.1%.

Apparently, Mr Osborne believed that this was the most he could do, without damaging the UK's credibility in ways that could ultimately do more harm than good. (I say apparently, because if he thought he could do more, you have to assume he would have done it.)

We will literally never know whether the chancellor was right to think his room for manoeuvre in the winter of 2012 was this small. That is one question the OBR is never going to answer.

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

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  • rate this

    Comment number 261.

    6th December 2012 - 10:40

    Also, saying there's no room to maneouver. What about all the tax evaders/avoiders? If we're all in this together
    Assuming you have a tax code, you are an avoider, so we are all avoiding together. We are overtaxed, and have too many snouts in Quango troughs. Ditch Westminster or Brussels.

  • rate this

    Comment number 260.

    258. fleche_dor

    Well don't write such illogical nonsense if you don't like being given the right name!

    At least attempt to think and do some reading and learn about how economics actually works - not the make believe nonsense that seems to go on in your head!

    First I would recommend some basic arithmetic.

  • rate this

    Comment number 259.

    256.Billy Smith

    "You do realise that manufacturing in the UK is lost forever?"


  • rate this

    Comment number 258.

    #251-3 J_f_H

    The article's on fiscal change in autumn statement. Invective, insult & illogical contradiction are misplaced.

    “A gentleman will not insult me, and no man not a gentleman can insult me.” Frederick Douglas.

    “What ever the motive for the insult, it is always best to overlook it; for folly doesn't deserve resentment, and malice is punished by neglect.” Samuel Johnson.

  • rate this

    Comment number 257.

    Computers store vast amounts of information.
    The smallest amount is one bit, possible values of 0 or 1.
    That is our individual input to democracy - one every 5 years - values red or blue.
    A coin toss would save a lot of money.

  • rate this

    Comment number 256.

    252. John_from_Hendon

    You do realise that manufacturing in the UK is lost forever? Reducing prices won't solve that. I for one don't much mind, I would rather live in a developed country than a middle income one, just because China has a larger economy than the UK doesn't mean it is better: Our GDP per capita is three times that of China and by 2050 will still be twice that of a slowing China

  • rate this

    Comment number 255.


    Death taxes - Hmm there is a gigantic promise the coalition has broken!

    They promised to raise the threshold to £1M - they have done nothing it is still at £325K.

    the HMRC web site shows

    6 April 2009 to 5 April 2015 = £325,000

    So they are assuming that the Tories will break yet another promise!

  • rate this

    Comment number 254.


    (Do you remember selective employment tax? This long abandoned tax was designed to encourage productive manufacturing investment.)

    On the figures: the UK is producing less with more workers so national productivity must be falling (off a cliff?)! This is a very bad thing economically.

    We must maximise the output of our labour - not hide them away!

  • rate this

    Comment number 253.


    Somehow you just can't do the sums!

    Interest rates must rise to nearer the long term prudential level 10 times the rates we have at present. We have to kill off the capital guzzling bankrupt businesses so that new businesses can thrive (incl banks).

    I've been creating businesses for many years and always they produce profits or they are not worth starting (at min. 25% MIRR).

  • rate this

    Comment number 252.


    House are to live in. They are NOT and investment. They are NOT a pension because they produce nothing. We must become more like the Germans if we are to emulate their success. We must get back to nearer Chinese cost levels if our excellent workers are ever to make things again. What this means is that workers costs must reduce. This means that houses must fall in price!

  • rate this

    Comment number 251.


    You really are quite a crackpot and are in complete denial. Your insanity of a debt fuelled future - is past - the economy is over-borrowed and must repay private debt or otherwise deflate it.

    Houses as investment is never the way to run an economy as the last fifteen or so years have so well proven but fools like you haven't noticed and just try to find excuses!


  • rate this

    Comment number 250.

    Monetary Central Planning:
    Kevin Annett, money system to slave native people in Canada:

  • rate this

    Comment number 249.

    Tarzan & Ken together? Am not ageist & think PMs/Mins/MPs in 70s no problem. But when you listen to those two talk it is largely of the past but for now. We are in uncharted territory in the causes & scale of our present problems.

    It needs the GO 'cuts' approach + a lot more that is fresh thinking.

  • rate this

    Comment number 248.

    "UK manufacturing output sees sharp fall"

    So what exactly are all the thousands of people who have found 'jobs' doing?
    Unless of course they were found 'work' simply to get them off the unemployment total.

  • rate this

    Comment number 247.

    Heseltine's plan was a re-think but along Thatcher/Blairite lines: give money to small number, hope for trickle-down. Cant remember amount he had in mind - £45bn? - but there is no guarantee of success. More of a U-turn to the Enterprise Allowance that was successful in part.

  • rate this

    Comment number 246.

    Dispiriting. The Tories in particular, for them it is about getting back to business as usual. They have no new ideas at all. Well, they are conservatives! No real reform has occurred. At best back to a 1950's ish world, tight credit, revived class politics and the whole cycle repeats.

    Henry George - Progress & Poverty. Steve Keen - Debunking Economics.
    Mason Gaffney - Corruption of Economics.

  • rate this

    Comment number 245.

    Stephanie, you used to be really great at focusing economic debate around historical factors. How much money was misappropriated by the banks and how much money was lost under Labour. I respected your partisan approach and balance. You are very down on the Chancellor who as you do admit, has to balance domestic policy with the world's financial probs. Please bring back Steph the balanced analyst.

  • rate this

    Comment number 244.


    Just when are you going to grow up and start thinking for yourself instead of endless repeating Tory party propaganda ad infintum....???

    Of course the Beeb are asking more questions of the Govt.....because they are currently in power......EXACTLY the same as the way they treated Labour when they were in power......

    .....truly you cannot think for yourself can you...???

  • rate this

    Comment number 243.

    #241uptosnuff -

    Its time for change, but not rethinking - 8pt plan was thought up before 2010 election. The economy needs action or action man now. Growth, not housing collapse.

    George Osborne has spent a lot of time sitting on his hands, thinking about securing his party's re-election, as Chief Party Strategist, but completely neglected his main task; economy.

    Time is up. We need Tarzan&Ken!

  • rate this

    Comment number 242.

    #237J_f_H- '79, 80's or early 90s rates? Black Wednesday?

    Property development companies have land banks; with planning approval, awaiting funds & market confidence to improve to build. Construction = activity, employment, taxes, economic growth & property supply, reduced house prices for FTBs, etc; if buyers can borrow at affordable rates.

    House price rises took off at Millenium, not mid-90s.


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