By Ben Salisbury
George Osborne, the Chancellor, presented his highly anticipated autumn statement to parliament today against a backdrop of lower growth estimates, increased government spending and a plea from both businesses and households to provide investment and to curb taxes respectively.
Did he pull it off? Our earlier feature today gives the opinion of both analysts and stakeholders.
In truth, Mr Osborne had little to work with. The government is following a deficit reduction strategy and one of its two fiscal mandates is to cut the deficit in the course of its first term in power, a strategy that the Office of Budget Responsibility (OBR) today announced was slipping short of its 2015 target by £30 billion on current projections. Overall, businesses seemed relatively satisfied and the most vulnerable did not see further cuts to benefits.
The Chancellor announced a £40 billion credit easing scheme and 35 new rail and road infrastructure projects. Drivers were spared a planned 3p per litre fuel duty increase but most of us will have to work until 67 before we are entitled to the state pension.
There was no joy for savers once again who bear the chief burden of low interest rates but pensioners will see their earnings rise by the September level of CPI inflation, 5.2 per cent.
Here is a run-down of ten key areas focusing on how the Chancellor’s plans affect your finances.
GDP and economic growth
The OBR announced it has revised its growth forecast for this year to 0.9 per cent from 1.7 per cent in March and for 2012 down to just 0.7 per cent from an early forecast of 2.5 per cent and Mr Osborne admitted that we are unlikely to see much growth until at least mid-2012. He also said that if the euro debt crisis spreads “it may prove difficult to avoid here.”
Lack of growth is likely to affect tax revenues and unemployment is also expected to rise next year. This adds to the strain on the public purse and makes it even less likely that the Chancellor will be able to cut the deficit by 2017. The OBR today said that on current performance and forecasts it believes there is only a 60 per cent chance the government will meet its target on deficit reduction by 2017.
The government’s fiscal mandate requires it to balance the structural or cyclically-adjusted current budget (CACB) at the end of the five year forecasting horizon and requires public sector net debt (PSND) to fall as a share of GDP between 2014-15 and 2015-16.
Mr Osborne said the government is on course to meet both these targets, but having pushed back the deadline by two years within a year of making it and threats to the economy, chiefly from Europe, his claim is dubious. As mentioned, the OBR are not convinced and there latest projection today on cutting debt as a percentage of GDP is also close to the bone as they now expect to see a fall of just 0.3 per cent.
For households in the UK this could mean further cuts and increased taxes if the government has to find a way of meeting the targets in the next few years.
Government borrowing is set to increase putting the deficit reduction target at risk. This year will see the government borrow £127 billion, up from its earlier projection of £122 billion and overall there are increases each year to tot up to £111 billion extra than planned over five years. The projection is that borrowing will fall to£120billion in 2012-13, £100billion in 2013-14, £79billion in 2014-15 and £53billion in 2015-16.
This figure could rise further if tax revenue and increased benefits add to the government’s costs.
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Public sector pay and jobs
The number of public sector job losses by 2017 has been revised up from 400,000 to 710,000. Public sector pay rises are to be held at one per cent for two years.
TUC general secretary Brendan Barber said: "Public servants are no longer being asked to make a temporary sacrifice, but accept a permanent deep cut in their living standards that will add up to over 16% by 2015 when you include pay and pension contributions."
There will be £5 billion extra spending on investment projects over three years which will include £1 billion on the rail network. There will also be 35 new road and rail projects and by using UK pension funds the government will aim to generate a further £20 billion to invest.
The plan is to invest £20 billion into a credit easing plan over two years to lower the cost of borrowing for small and medium-sized businesses by up to 20 per cent. The Chancellor also provided an indication that the plan could be extended with a further £20 billion invested.
Financial institutions or individuals who lend up to £100,000 to small companies with less than 25 staff and £200,000 in assets will receive 50 per cent off the income tax bill related to their investment.
The government confirmed that it will make it more difficult for employees to sue companies for unfair dismissal. Mr Osborne said: “We need to consider the health and safety of the economy.”
Employees will be able to be dismissed for being unproductive even if they have not committed a sackable offence, though they would receive compensation.
The chancellor also said he would explore possible changes to planning laws to help businesses.
Fuel duty and rail fares
The planned 3p a litre rise in fuel duty from January 1st 2011 has been cancelled but the duty rise of the same amount in August will go ahead.
Train fares were due to rise by the September rate of the consumer prices index (CPI) measure of inflation, 5.2 per cent plus a further three per cent, totalling 8.2 per cent. The y will now increase by CPI plus one per cent, 6.2 per cent.
Find out exactly what you are paying for fuel
Tax credit and benefits cuts
The planned increase for families receiving Family Tax Credit of £110 annually above inflation has been scrapped. Increases in benefits for those who receive disability based tax credits will rise by the level of inflation but other recipients of tax credits will see a below-inflation level increase.
The state pension
The basic state pension will rose by £5.30 next year to £107.45. it will increase in line with inflation by 5.2 per cent. This applies to the second state pension too.
There are no planned changes to pension’s tax relief. The age at which people will be able to receive the state pension will rise to 67 by 2028.
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