Insider insights ahead of Wednesday’s announcements
The annual fiscal carnival that is the Autumn Statement is happening on Wednesday.
However, “the cupboard is bare”, according to the EY Item Club, so George “Old Mother Hubbard” Osborne is going to struggle to give all the increasingly frustrated doggies a bone.
The government had expected to make 7% more from income tax payments this year than last year. But unfortunately the recovery didn’t do exactly what it was supposed to, and income tax receipts have only risen a measly 0.4% since last year.
Normally at this time of year, the media are running innumerable stories about which industries and groups of people will see beneficial changes in economic policy.
But this year the rumour mill is eerily quiet. The only thing anyone’s really sure of is that the government has spent a lot more money than it said it would, and there’s not much left to play with.
Normally the government engages in the Autumn Statement game – it’s a chance to spin out some of the flashier proposals into positive news stories for a few days. But this year it has merely burbled something about a £15bn spending package on roads. But wait! They had already announced the plans before, twice.
Given the country’s crumbling road network, this is basically just overdue maintenance. In a futile attempt to drive a bit of excitement about it, Deputy Prime Minister Nick Clegg was despatched to Stonehenge this morning to talk up the plans. It made for painfully dull listening on the BBC’s Today Programme this morning.
So far so bleak.
But it gets bleaker for the chancellor, as he will somehow have to admit that he’s planning to borrow even more, as borrowing is expected to be revised upwards by the Office for Budget Responsibility.
And not just by a small amount – an estimated £75bn more than predicted is needed by the end of the decade to plug holes in a spluttering economy.
His speech-writers are no doubt having their minds wrung out by the effort of translating that into something positive.
Employment vs. wages
Expect to hear a lot of positive guff about the rise in employment. The figures have increased, which must be a relief for the government. But as the bottom has fallen out of real-terms wages in a truly catastrophic way, the success is ambiguous.
The picture is worsened as a slowing housing market will reduce the amount taken by the government in stamp duty. The OBR’s forecast of £12.7bn in stamp duty takings is expected to take a nosedive, according to commentators.
Elsewhere, public services and the category the government describes as “welfare” can expect a further savaging.
The government has already put out a controversial piece of propaganda telling people that 25% of their tax bill goes on “welfare” – presumably to rile up the public, most of whom are struggling on low wages. What it doesn’t say is that this welfare section includes pensions paid to nurses, doctors, police officers and fire crew, as well as the spending on social care, public service pensions, disability benefits, and child benefit.
Speaking about what to expect in the Autumn Statement, Paul Johnson, of the Institute for Fiscal Studies, said to the BBC: “We’ll probably end up with the deficit a bit higher than the OBR was expecting back in March.
“The consequence will be that, by 2018, we are looking at spending cuts of one-third in a whole slew of public services.”
NHS vs. schools
Amongst this, Osborne will have the chance to play a trump card as he promises a small boost (just £2bn) for the NHS. This, he will say, is a “down-payment” to secure the future of the free health service.
But wait, where is the £2bn coming from? Britain certainly hasn’t got the sum going spare. According to the IFS, it is going to precipitate “staggeringly big” budget cuts elsewhere. Schools, pensions and benefits are all in line for “dramatic” slashes to their spending in the coming years, according to the institute.
With all this negativity, Osborne’s going to be hard pressed to make this year’s Autumn Statement look anywhere near as convincing as his Budget speech earlier this year. Remember pensions, bingo and beer? The unholy trinity of political success.
With the state that wages are in, it’s unlikely he’ll be going for another attempt at populist tax relief gifts for the public. They’ll just laugh at him, no matter how much he bangs on about “hard-working people”.
Instead, expect to get lost in a black hole of dry economic fiddling. Maybe he can bore the public out of taking umbrage with his desolate spending and cutting programme.