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Autumn Statement: ‘No miracle cures’ as Osborne misses debt target and extends austerity

Economic forecasts revised down and one of two public finance targets missed as chancellor sticks with his Plan A.

 
Autumn Statement: ‘No miracle cures’ as Osborne misses debt target and extends austerity

Brits were today told to expect ‘no miracle cures’ as chancellor George Osborne revealed the full extent of the damage to the UK economy, while admitting that he had missed one of two coalition budget targets.

Osborne, who started his Autumn Statement with a confident assertion that the British economy was ‘healing’ and ‘on the right track’, revealed lower economic growth forecasts from the government’s budget watchdog, the Office for Budget Responsibility (OBR).

The economy will have contracted by 0.1% this year – down from the OBR's 0.8% forecast in March – the independent body predicts, primarily blaming a decline in exports to struggling European countries. The UK will then grow 1.2% next year and 2.0% in 2014, the OBR says.

While the chancellor said he was on course to meet his target to eliminate the structural deficit in five years – with a better than 50% chance according to the OBR – his aim of getting Britain's debts falling as a share of GDP has been delayed by one year to 2015.

He delivered a ‘fiscally neutral’ statement, with no net tax rises, despite announcing a string of tweaks in a statement designed to raise money from the rich and unemployed.

Today's budget update was seen as acknowledgement by the chancellor of advice from the International Monetary Fund not to further extend his austerity plans amid such a weak economic recovery.

Osborne announced a plan for infrastructure spending, a 1% cut to corporation tax and scrapped a planned 3p rise to fuel duty in an attempt to boost the economy. He also pledged to crack down on tax evasion and further cut back Whitehall budgets.

There will be no 3p fuel tax rise this January, cancelling previous plans.

The threshold for paying the top 40% rate of income tax will rise by 1% from 2014

There will be no new tax on property

Benefits will be ‘uprated’, essentially freezing rises in state support at less than the rate of inflation.

The inheritance tax (IHT) nil rate band, which has been frozen since 2009 at £325,000, will increase by 1% in 2015-16 to £329,000

The annual allowance for pension contributions will be cut from £50,000 to £40,000 and the lifetime allowance from £1.5 million to £1.25 million, in an attempt to save £1 billion in tax relief each year.

The income limit on capped drawdown arrangements on pensions will be increased from 100% to 120%, restoring the 20% uplift.

The ISA limit is being raised to £11,520, while the government is consulting on allowing stocks and shares in AIM companies to be held directly in ISAs

The income tax personal allowance will go up to £9,440 next year, which is £235 more than previously announced.

The government has increased the capital gains tax (CGT) allowance by 1% to reach £11,000 in 2014/15.

The threshold for paying the top 40% rate of income tax will increase by 1% from 2014. The threshold will go from £41,450 to £41,865 in 2014 and another 1% to £42,285 in 2015.

The basic state pension will rise by 2.5% next year to £110.15 a week.

Child benefit, currently frozen, will now rise by 1% for two years from April 2014.

Osborne said three one-off events affected the government finances:

  • the transfer of the Royal Mail pension fund to the public sector as part of its privatisation cuts the deficit by £28 billion this year;
  • bringing bailed-out banks Bradford & Bingley and Northern Rock back on the country's balance sheet adds around £70 billion to the national debt;
  • this is offset against the transfer of cash from the Bank of England’s quantitative easing scheme which will add up to £35 billion to the Treasury's coffers.

Osborne will be waiting for the rating agencies' verdict on his plans, with the UK's prized AAA rating under threat.

Previous economic forecasts from the OBR have proven too optimistic. Today's lowered forecasts from the watchdog, which underlay the chancellor's plans, remain under threat, with the average City and independent economic forecaster polled by the Treasury expecting weaker growth in 2012 and 2013.

Markets were little moved in response to Osborne's statement, with the pound slipping a little, as economists get to work on reading the small print.

9 comments so far. Why not have your say?

Philmo

Dec 05, 2012 at 19:11

At last a chancellor who says it the way it is!

We must bite the bullet and accept that it is not possible to spend a way out of debt!

What we can do is minimise spend on joyriding wishlist luxuries like HS2 and max on real payback projects like Severn Barrage.

Disappointed with the dropping of fuel tax hike which was a real incentive for all, especially gas guzzlers, to step off the gas and help the environment. Long term this must be the way to go!

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MikeR

Dec 05, 2012 at 21:43

Good news on dropping fuel tax hike - manyof us living in rural areas have no alternative but to use our cars. I enjoy my car anyway! Pity he didnt reduce fuel tax - its still too high.

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gwil

Dec 06, 2012 at 19:04

He was as usual just tinkering around the edges. This government, even more than the last, has refused to tackle inefficiencies in both the public and private sector. The UK economy will not recover by Lazy Osborne Economics. Government needs a strategy for all levels of business and government. Quite simply there isn't one. If you want me to state a concrete example ... that would not be difficult!

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Philmo

Dec 06, 2012 at 22:07

Well a good concrete example is the continuation of HS2 when we desparately need the energy output from the Severn Barrage which was put on one side by the brainboxes of Whitehall!

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gwil

Dec 06, 2012 at 23:33

Yes I agree ... the most important things to invest in are those that give a clear return. Most important are those that assist a very large number of people, organisations and companies to achieve maximum efficiency. One example is the government's tax and benefit system ... this is highly inefficient as it creates an interface between 50,000 civil servants and millions of individuals / companies. It is completely unnecessary to run the system as it is ... and I could explain in detail ... But really the point is if you look in any direction with this government you see lack of ideas and strategy ... they are simply treading water. Personally I would ask the Lib Dems to get rid of Mr. Clegg and topple the government. I think it is now clear it needs putting out of its misery ... we know it is going to take a longtime to recover ... but we won't at all with this bunch. I know Labour look lack lustre too but anything is better than watching this bunch twiddle their gold encrusted thumbs!

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Philmo

Dec 07, 2012 at 00:16

Sorry gwil - there's no way Ed Balls could be entertained with his payday loan approach to UK plc!

The one HMG politician who is currently showing gumption and backbone is Osborne, who given free rein I think would take a more austere direction. I believe he's under orders to tread softly and keep happy the consumptive masses (applies to all classes!), who got used to spending and borrowing rather than living within their means.

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gwil

Dec 08, 2012 at 20:05

Personally I think Osborne has been shockingly bad ... not the cuts ... just the lack of real industrial and general strategy ... all this business about there being a big difference between the parties on cuts and tax is a nonsense ... they are essentially quite similar.

The real potential difference would be if one party had a strategy that was workable, modern and dynamic. Look at the way they still collect income tax and NI ... it is laughably bad ... and about to get worse. I thought this lot would at least scrap employers NI and merge it with income tax and employees NI.

Do you realise what savings could be made just in HMRC alone if they had a decent strategy for tax collection? Billions. Do you realise that they could have made it almost trivial to employ anybody scrapping nearly every HMRC form. They could have. They haven't. Why not?

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Philmo

Dec 09, 2012 at 00:26

Agree gwil re the savings which could be made through efficiency improvement.

The whole of the public sector needs to go through intensive time management courses for a start.

Then there needs to be a review of all staff already taking a pension and working on contract.

etc

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gwil

Dec 09, 2012 at 20:43

I'm certainly not anti-public spending but it is just essential it is highly effective and efficient. I also do not think most UK companies are that brilliant either ... many chunter along simply because none of their rivals are up to much either. There is a need to get a dynamic going this can be by making what was public private and what was private public. A good example is the banking sector ... and I mean the retail part of the banks and mutuals here ... no out of the box thinking here ... and why should they since all the rest are doing the same old thing. Government has by 'accident' ended up with what is effectively a public bank. Why not do something with it/them to challenge the private banks ... mix it up. No need to tax banks just show them what a 21st century bank should be like. Of course this is the same in almost every sector ... if the UK wants to keep a good position it will need genuine innovation not just in culture but also in industry and commerce. Doesn't look to me if Dave, Ozzy or even Vincent have it in them. You can do a lot in government if you so choose or you can sit on your hands doing the occasional bit of fiddling at the edges. Now is not the time for a bunch of fiddlers ... but it is becoming clear ... it is fiddlers we have.

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