The Spending Review/Autumn Statement in two charts
I had planned to make this the story of the Autumn Statement and Spending Review in five charts, or maybe ten charts(we journalists tend to like to do things in round numbers) but I think you can actually tell the story in only two charts.
Before we get onto them, in a nutshell, here’s what’s happened in this Spending Review: the government is cutting spending by less than expected and cancelling its tax credits cuts. Those are two big, expensive decisions, so how does the Chancellor make the numbers add up in his favour, and eliminate the budget deficit by 2019/20?
Answer: higher taxes and a big “gift” from the Office for Budget Responsibility in the form of upgraded forecasts for future tax revenues.
So, onto the charts.
The first of them shows you just what the Treasury is doing today, and how its policy decisions imply higher or lower deficits (aka borrowing). Anything above zero on the chart implies more money being spent by the government (or foregone), and hence more borrowing.
To take 2017/18 as an example, its decision to cancel the tax credit cuts will cost it £1.9bn (the red bit). The cuts to spending (the blue/grey bits: RDEL and CDEL — resource and capital departmental expenditure limits) will be less than previously expected, costing it £9.8bn more.
Offsetting that, it expects to raise £5.5bn through a host of new taxes, including the apprenticeship levy, higher council taxes and stamp duties for second homes.
However, all else being equal that would still leave the government borrowing £6.2 billion than it would have borrowed. And yet the Chancellor was able to declare that borrowing in 2017/18 would be lower, not higher, than expected. How?
The answer is to be found in this chart, which is, like the previous one, from the OBR’s documents published today. Look at the yellow bit of the bar for 2017/18: that’s the £6.2bn of extra net spending the Chancellor put into today’s Autumn Statement. Now look at the bottom of the chart: the big dark blue-grey part of the tab represents a big change of mind from the OBR. It now thinks the economy will yield a lot more tax revenues in the coming years, which will bolster the Treasury’s accounts. In 2017/18, it thinks those extra tax revenues will reduce borrowing by £7.9bn.
That, of course, is far bigger than the net impact of George Osborne’s own policy changes, which is why, when everything is taken into account, borrowing that year is indeed lower than the previous estimate.
Many questions remain: is the OBR right to change its mind? Will those tax revenues really roll in (they haven’t in the past, and the latest fiscal numbers, out last week, were particularly bad — and came too late to be incorporated into the OBR documents)? And does today’s u-turn mean the Chancellor has given up on ambitious austerity?