In Depth

Autumn Statement 2015: who will win and who will lose?

Unchanged Universal Credit will reduce 'long-term generosity' of benefits, but poorer families are more protected

George Osborne's Autumn Statement, released on Wednesday, was widely hailed as a 'U-turn' that signals the end of austerity as we know it.

In his spending review and statement, the chancellor reversed the £4bn cuts to tax credits, offered billions of pounds' worth of incentives for those looking to buy a home and boosted pensioner income to a 15-year high, all without compromising on an eventual budget surplus by the end of this parliament of around £10bn.

The reforms were mostly made possible by a £27bn windfall from lower government debt servicing charges. But behind the headlines announcing the 'end of austerity', there are both winners and losers.

Poorer families

It's in this area, perhaps, that Osborne's U-turn is most dramatic. Cuts to working tax credits announced in July and projected to total more than £4bn were completely reversed, meaning that many poorer working families will now be better off than they would otherwise have been before Wednesday.

The Labour party has accused Osborne of using "smoke and mirrors", pointing out that there will be no changes to the universal credit due to replace tax credits (along with five other working-age benefits) or plans to stop child tax credits from the third child onwards from April 2017. 

The chancellor's reforms include a small cut to housing benefit. A cap on payments that applies to the private rental sector will be extended to the social sector, saving around £225m a year by 2020.

The Institute for Fiscal Studies (IFS) reckons that 2.6 million working age families will still lose an average of £1,600 by the end of this parliament, while 1.9 million families will gain £1,400. But work incentives have now been improved so that 'strivers' will be better off compared to non-working families – and in general the benefits are better for the poorest 60 per cent of families.

Home buyers

There are plenty of giveaways here. People struggling to save up for a deposit will now be able to get a government loan under an extension of the Help to Buy equity loan scheme, while those looking to buy in London will be able to get a larger loan worth 40 per cent of the property value.

There will also be more houses available for people to buy – in theory. A doubling of £2.3bn in the housing budget will contribute to the building of 200,000 new starter homes that will be sold at a discount of 20 per cent to first-time buyers. A relaxation of planning laws should help to build as many as 400,000 starter homes over the next four years.

But there are pitfalls for some buyers. People looking to buy second homes to rent will be hit for the second time in a row by Osborne, with a new three per cent stamp duty surcharge designed to help level the playing field for first-timers. 

The Daily Telegraph points out that the measure could still hurt poorer families by pushing up rents. In the long-term, according to the IFS, it would also help to "drag down property prices". Others might say that given runaway recent inflation, this could be a plus for the wider market.

Other key reforms

There are also a number of smaller measures that will affect different groups. 

Pensioners will again do well on average. A 2.9 per cent rise in the state pension to match the rise in earnings will boost real incomes to their highest level in 15 years, while the new flat-rate pension has been set at a relatively high £155 a week.

Some pensioners will still lose out, however. Pensioners who have permanently left the UK will lose their entitlement to pension credit.

Elsewhere, businesses are up in arms about a £3bn apprenticeship levy that amounts to a major tax rise on corporates. Some, however, will see this as a progressive move to bolster support for those out of work. Politically, this unexpected sting for businesses represents a major raid on Labour territory.

A general overview

The IFS analysis says that the changes represent a major turnaround on austerity and that the "gap with what one might have expected, based on the Conservative manifesto, is substantially greater."

But overall, The Guardian notes, the "long-term generosity of the welfare system is being cut just as much as ever intended". It's just not going to hit poorer families anywhere near as much as previously thought – and some will even gain.

As for the rest of his reforms, Osborne has possibly alienated Middle England with the likes of his buy-to-let tax, but if such reforms help to broaden the Tory party's appeal across Britain, the chancellor will probably deem that it was well worth it.

Autumn Statement 2015: Osborne U-turns on tax credit cuts

25 November

George Osborne made a big announcement at the beginning of his Autumn Statement: that the cuts to tax credits will be cancelled altogether. No softening, no transitional help, the government is merely allowing tax credits to phase out with increases in wages.

This is made possible in part by a £27bn gain from lower debt servicing costs. Some of this will be spent on investing in infrastructure and borrowing £8bn less, with the budget deficit otherwise falling faster than expected over the next four years.

The surplus at the end of the parliament has also been maintained at around £10bn, confounding critics who had said Osborne would have to scrap this target.

There will be some other cuts to benefits, including a new cap on housing benefit in the social sector and removing pension credits to those people who have permanently left the country, to help fund the measures.

Another key area of criticism for the chancellor was social care. Osborne again sought to offset this by adding £1.5bn to the 'Better Care Fund' - which is actually funded from within the NHS budget - to help councils to pay for rising care costs, including a higher minimum wage.

A big flourish for the chancellor saw him double the housing budget to £2bn as part of a major plan to help reverse the trend of younger households renting rather than buying. This will enable 400,000 homes to be built by 2020, Osborne says.

Among other measures on housing, Help to Buy rules will be relaxed to allow shared ownership, there will be a new, more generous Help to Buy scheme in London, and there will be higher stamp duty on buy-to-let properties to stop the rise of private landlords squeezing out younger buyers.

The final element of his speech saw Osborne once again turn the tables on his critics by announcing he would not cut the police budget - "despite representations from the shadow home secretary for cuts of 10 per cent".

Osborne has let it be known all week that the police could afford to make cuts, so he's clearly hoping to catch out Labour with this turnaround. 

Osborne has also said:

  • All £12bn of welfare savings will be delivered in full
  • Businesses will be hit with a £3bn "apprenticeship levy", effectively a major tax increase that will help to pay for other giveaways
  • Business rates will be entirely devolved to councils - as previously announced. Local authorities will also be able to raise more money through rates to fund infrastructure projects
  • Elsewhere on the devolution front, Northern Ireland will now have powers to set its own rate of corporation tax, which has been agreed at the 12.5 per cent charged in southern Ireland
  • The triple-lock will increase the basic state pension at the fastest rate in 15 years. New single tier pension will be set at £155
  • £10,000 of childcare costs - 30 hours - will be made available. This will be made affordable by limited supporting to those working over 16 hours and earning less than £100,000
  • New Office for Budget Responsibility forecasts show British economy will still grow 2.4 this year and next, rising to 2.5 per cent in 2017, falling back to 2.4 per cent in 2018 and 2.3 per cent in the subsequent two years
  • Another million jobs to be created over the next five years, OBR adds

Under the spending review:

  • Day-to-day spending of government spending to fall 0.8 per cent in real terms - in part due to improvement in public finance
  • £6bn of increase to NHS budget will be delivered up front. But other cuts to health budget will be made, including cutting grant support for student nurses in favour of loans
  • Capital spending budget of the Department for Transport will rise by 50 per cent. But it's one of the worst hit on admin costs, however, with a cut over four years of 37 per cent
  • The Department for Works and Pensions will see just a 14 per cent annual cut, less than most. It is going to have a higher workload, though, including by forcing unemployment benefit claimants to attend a job centre each week for three months 
  • Admin budget of Department of Culture, Media and Sport will also see a sizeable fall of 20 per cent, but the budget for the Arts Council and museums - and the BBC's World Service - will all rise
  • The Business, Innovation and Skills budget will fall by 17 per cent, but budget for science and innovation will be protected in real terms
  • Spending on offices for Wales, Scotland and Northern Ireland will be protected in real terms
  • Schools budget will increase - and with funding for pupil premium and other measures will rise by £10bn. Even despite admin cost cuts, Department for Education will still see real terms rise 
  • Defence budget to rise from £32bn today to £40bn, with all increases in spending on equipment as previously announced confirmed

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