Autumn Statement: plans to cut spending 'to 1930s levels'
Treasury watchdog forecasts 'eye-wateringly' tight cuts to public spending over the next five years
George Osborne's pledge to transform stamp duty in yesterday's Autumn Statement has been described as a "distraction" from the government's higher-than-expected deficit and plans to cut public spending to its lowest level as a percentage of GDP since the 1930s.
The Office for Budget Responsibility has warned that government is likely to exceed its borrowing targets this year. The budget deficit for 2014/15 was pencilled in for £40bn in 2010 and revised up to £87bn in March, but the OBR says it is more likely to be £91.3bn by the end of the financial year.
Osborne pointed out that the deficit is nevertheless falling year on year, but the OBR warned that a "very tight further squeeze" on public spending is needed if it is to be eliminated over the next five years.
Total public spending is projected to fall to 35.2 per cent of GDP in 2019/20, its "lowest level since the 1930s", says The Guardian. The newspaper suggests that this might require cuts in non-protected departments, such as police, local government and justice, amounting to a further £60bn by 2019/20.
"In order to meet eye-wateringly tight cuts to spending over the next five years, ministers are intending to outsource swathes of services currently provided by the public sector," says The Independent.
The Treasury spending watchdog has also predicted that one million public sector jobs will be cut by 2020, the public sector pay squeeze will be renewed and tax credits will face a further squeeze.
In yesterday's Autumn Statement, the Chancellor saved his stamp duty giveaway until last, insisting that 98 per cent of homebuyers would save money under the new rules.
Previously, homebuyers paid tax at a single "slab" rate on the entire property price. From today, they will only have to pay the rate of tax on the property price within each tax band – in the same way that income tax is calculated.
"The surprise announcement to reform stamp duty also helped to distract attention from the admission of higher borrowing," says The Times. "Cuts to the interest bill on Britain's £1.5 trillion national debt spared [Osborne] worse embarrassment."
Here is what else we heard in the Autumn Statement:
- Stamp duty system to face major reforms intended to benefit 98 per cent of homebuyers
- Office for Budget Responsibility will revise up deficit forecasts for this year and next, but says the deficit will fall faster than expected after these two years
- The OBR has also upgraded growth forecasts for 2014/15 to 3 per cent and 2015/16 to 2.4 per cent but revised down forecasts beyond that
- Business rates face a "complete review"
- The personal allowance will be increased by another £100 to £10,600 in 2015/16
- Fuel duty will be frozen
- Air passenger duty will be scrapped for under-12s and later for under-16s
- Employer National Insurance contributions for young apprentices will be abolished
- New student loans of up to £10,000 will be available for postgraduate study
- Unemployment set to fall to 5.4 per cent in 2015
- Inflation predicted to be 1.5 per cent in 2014, falling to 1.2 per cent in 2015
- Higher rate income tax threshold will rise to £42,385 next year
- The NHS will be given £2bn extra every year until 2020
13.25: Osborne finally offers his big sweetener – the stamp duty residential slab system will be abolished and a new fairer system will be introduced from midnight tonight. Houses worth up to £125,000 will pay no stamp duty. There will then be a 2 per cent charge on houses worth up to £250,000, but buyers will only pay tax on the amount by which the price exceeds the threshold, rather than the whole sum. A house sold for £250,001 would therefore only incur stamp duty of 2 per cent on £1, ie 2p, rather than 3 per cent of the full price, or £7,500.03, under the current system. Higher charges will be applied to more expensive homes, with a 5 per cent bracket up to £925,000, 10 per cent up to £1.5m and 12 per cent over £1.5m.
13.20: Total welfare spending is set to be £1bn a year lower than forecast in the Budget, says the Chancellor. Universal Credit work allowances will be frozen for a further year and unemployment benefits will stop for migrants with no prospect of work.
Libor fines will continue to support military and emergency service charities, he says.
The Chancellor manages to slips in a Wallace and Gromit jibe aimed at Ed Miliband, prompting laughs from David Cameron behind him.
The government will keep fuel duty frozen and will abolish air passenger duty on flights for children under 12 from next May. From the following year this will be extended to all those under 16.
Graduates will be able to apply for student loans of up to £10,000 to fund their postgraduate studies.
The Chancellor announces more help for small businesses, with business rates relief extended for a further year. He also announces a 25 per cent tax on companies that make money in the UK and then shift it overseas, dubbed the Google Tax.
ISA limits will be raised to £15,240. Furthermore, says Osborne, when someone dies their spouse will now be able to inherit their ISAs and keep their tax free protection.
Next year, the personal allowance will be raised to £10,600 "because we on this side of the House do not sneer at people who want to work hard and get on", says the Chancellor.
13.00: The British economy is forecast to grow by 3 per cent this year, says Osborne, three times faster than the Eurozone. Growth in the UK next year is forecast at 2.4 per cent, then 2.2 per cent in 2016, 2.4 per cent in 2017 and then 2.3 per cent in 2018 and 2019.
The Office for Budget Responsibility (OBR) inflation forecasts are 1.5 per cent this year, 1.2 per cent next year and 1.7 per cent the year after.
The Chancellor describes predictions of a rising deficit as "wrong". Deficit is falling this year and every year, he says. The Speaker calls for order, reprimanding MPs for making so much noise that the Chancellor has to shout.
Half a million new jobs have been created in the past year and the number claiming unemployment benefit has fallen 23 per cent, says Osborne. He adds that earnings will grow above inflation for the next five years. However, he warns that there is still going to have to be substantial savings in public spending.
12.45: After Prime Minister's Questions overruns slightly, the Chancellor kicks off. "Four years ago, I presented the accounts of an economy in crisis. Today, I present a forecast showing UK is the fastest growing of any advanced economy in the world," he says.
Growth is higher, unemployment is lower, inflation has fallen and the deficit is falling too, he says. The deficit is "half of what we inherited", he tells the Commons – to much jeering from the Opposition. "Mr Speaker, our long-term economic plan is working."
Setting the tone for the rest of the statement, he warns that this Budget will tighten the public finances. "This is not a net giveaway," he says.
Autumn Statement: does George Osborne have a surprise in store?
hancellor George Osborne will today deliver his Autumn Statement – and with just five months to go before the general election he is expected to announce at least one big crowd-pleaser.
This morning's newspapers speculate that he could announce a cut to inheritance tax or stamp duty to win over voters at a time when the government has little room for manoeuvre.
Ministers have issued a flurry of announcements ahead of the Autumn Statement, which sets out the state of the nation's finances before the March Budget.
But Labour has pointed out that the funding for plans announced earlier this week – including road improvements, flood defences and housing – was announced last year.
Growth is good and unemployment is down, but the deficit remains high, leading economists to predict a limited number of pre-election sweeteners. Or as Larry Elliott at The Guardian puts it: "Wednesday will be the political equivalent of the family rummaging around down the back of the sofa looking for some loose change to feed the electricity meter."
So what can we expect?
Osborne is expected to announce plans for new legislation to eliminate the budget deficit by 2017/18 as part of a new Charter for Budget Responsibility. The deficit is still close to £100bn-a-year and expected to fall only slightly this year, says the Financial Times. Public borrowing will need to fall dramatically in the next five months to hit the £86.6bn borrowing target set by the Office for Budget Responsibility. "Despite a near 700,000 rise in employment over the past year, this has not fed through into income tax as jobs growth has been centred at the lower-paid end of the market," says The Independent.
The Chancellor has already confirmed plans to release £2bn for frontline NHS services in the next parliament, and more if the Tories retain power after May. However, Labour says £750m of this initial funding would come from the reallocation of money within existing health budgets, while the Institute for Fiscal Studies has warned that protecting the NHS for the next five years will mean "staggeringly big" budget cuts in other areas such as education and pensions.
The Government has also announced the details of a £15bn road investment scheme. A new tunnel at Stonehenge and improvements to the M25 to ease congestion are among the details already outlined this week – although the funding itself was announced for the first time last year.
Osborne is expected to include a postgraduate loans scheme in his statement, based on proposals recommended by CentreForum and the Institute for Public Policy Research. The two think-tanks called for government-provided loans offering funding of up to £10,000 with individuals repaying nine per cent of their earnings between £15,000 and £21,000. Times Higher Education notes that government has been discussing the idea of limiting the loans to postgraduates in science, technology, engineering, and mathematics.
The Daily Telegraph says Osborne is likely to announce plans to build new homes and sell off more than £1bn of government-owned land for development.
Bicester in Oxfordshire has already been named as the site for the government's second "garden city", with 13,000 new homes due to be built on the edge of the town. The Financial Times says there is also speculation in Whitehall of a big reform to stamp duty on house purchases, while others say inheritance tax rules might face reform.
Alan Higham, retirement director at the investment company Fidelity, told the BBC that he expects to hear more information on regulations surrounding the pension reforms first announced in the March Budget. Osborne has already said he wants to make it easier for people to dip into their pension pots when they want, but there are still questions and uncertainties about the proposals.
Tax cuts are expected to be announced for widows and widowers who inherit their partners' annuity pensions. However, further cuts in taxes or changes to the personal allowance are expected to be kept aside for the parties' election manifestos.
Osborne has ruled out an increase in the duty on petrol despite a sharp fall in the price of a barrel of oil. Treasury ministers have backed calls for an investigation into high prices at petrol stations, and could possibly announce a further freeze in petrol duty to help motorists.
Help for business
The Treasury has said it will unlock £900m of support for small and medium sized businesses and will announce a review of business rates in a bid to help high street shops compete against online retailers. However, this review is not expected to conclude before next year's election.
Yesterday Danny Alexander, the Chief Secretary to the Treasury, outlined a £2.3bn flood defence programme that he said would give 300,000 homes better protection from flooding. Labour said the money had already been confirmed a year ago.
Deputy Prime Minister Nick Clegg has pledged an extra £150m of funding to help children with eating disorders. He wants to invest in preventative therapy to cut the need for hospital treatment.