The Autumn Statement: sound, fury, and a lot of hot air
It is perhaps fitting that the Chancellor’s Autumn Statement took place on a day which was dominated by news of storms and gusts. Rarely has a Parliamentary Statement been quite so full of hot air.
From listening to the Chancellor reeling off the various different measures he was announcing, you might have got the impression that today’s Statement was chock-full of an extraordinarily important set of measures – everything from school meals to National Insurance changes to a swathe of property market changes.
However, look into the documentation itself, and a different story emerges. The net effect of the measures contained in the Autumn Statement was, over the course of the next five years, microscopic in fiscal terms – a net £25m giveaway to taxpayers.
Now, on the one hand, this is precisely what George Osborne said in the Commons – that this would be a “fiscally-neutral” Autumn Statement – every giveaway more or less matched by a like-sized takeaway. But even the plusses and minuses were hardly very big. Not one of the measures (save for the pre-leaked extra spending cuts, mainly a result of underspending) will raise or cost more than a billion pounds.
The biggest cumulative expense over the next five years is the cancellation of the 2014 fuel duty increase (that’ll cost £3.4bn in total), closely followed by the marriage allowance (£2.5bn). That might sound like a lot, but then consider the fact that these will be more than paid for by the collection of anti-avoidance measures announced by the Chancellor (they will apparently raise a combined £6.9bn, though few would put much faith in the Treasury’s capacity to predict those kinds of revenues).
Anyway, the bottom line is that the new measures we heard about today will make little difference to the economy. Indeed, the main message from the Office for Budget Responsibility is that the biggest contributor to the upgraded growth and improved borrowing forecasts is the simple fact that the economy is recovering faster than expected.
More specifically, it expects a mini-housing boom in the run-up to the 2015 election, with property prices rising by more than 7% that year, partly on the back of the Help to Buy scheme. It’s a prospect that will cheer few economists – who had hoped that by now Britain would have grown out of its perennial reliance on housing to boost the economy.
Anyway, it is this economic recovery which means the UK will grow by 2.4% this year, rather than the 1.8% forecast in March. It is this which means the deficit will be whittled away over the coming years and will, by 2018/19, become a surplus, with the Government earning more revenues than it’s spending. In fact, if anything, the OBR is now being a little over-pessimistic, where before it might have been accused of over-optimism.
Though it thinks growth will be stronger than expected in the next couple of years, it’s below where the Bank of England thinks growth will be. It also actually trimmed the forecast for growth in 2016 and 2017. It also warned that most of the fall in borrowing was a product not of extra Government ambition on cutting spending but of the fact that a stronger economy means stronger tax revenues. In other words, the public finances still need work.
Having said that, they, and the broader fiscal picture, are starting to look substantially different – and now that the OBR has provided us with another year’s-worth of economic data we are in a position to take a step back and look at the kind of state we will be left with after the austerity is over. And the most striking finding from the OBR is the following: that come 2018, Britain’s state spending will be down to the lowest level since 1948 – the year the National Health Service was launched.
This is a major, some would say epochal, shift in the nature of Britain’s state. The public sector is shrinking down to the size it was before the advent of the welfare state. This is a staggering story – and yet has received precious little attention in the press. But expect it to return with a vengeance in the run-up to the 2015 General Election.
A few of you have made the valid point that the chart above doesn’t include spending on welfare or indeed the NHS. I’ve spent a bit of time in front of a spreadsheet and here’s a graph which shows you how George Osborne has arrived at that surplus in 2018/19. Here is public spending vs receipts going all the way back to 1948.