Today’s Autumn Statement required the Chancellor of the Exchequer to fulfil two goals:
- to assure markets that he was committed to deficit reduction,
- to bring forward policies that increase the sustainable growth rate.
Commenting on deficit reduction, Ryan Bourne, Head of Economic Research at the CPS said:
“The Chancellor set himself two clear fiscal rules in his June 2010 Budget: to eliminate the cyclically-adjusted deficit, and for the debt to GDP ratio to be falling by the end of this Parliament. It is extremely disappointing that he has now decided to re-interpret the first rule as a ‘rolling target,’ giving him license to ‘meet’ it two years later in 2016/17.
It would have been far more credible for him to state that he would do anything possible to eliminate the deficit within this Parliament, with further spending cuts if necessary. By deciding against doing this, the Chancellor has accepted that central government debt will increase by an additional £145 billion across this Parliament – taking our official debt levels to a huge 78% of GDP by 2014/15.
It’s important to note that all of the forecasts released by the OBR today depend on a resolution in the Eurozone. Unless this is resolved quickly, recession is probable and the Chancellor is likely to regret not taking pre-emptive measures to cut spending more quickly than he’d originally planned. There are still many areas of Government expenditure that are a luxury for the economic circumstances that face us – and a hurricane from the continent could lead to a rapid decline in market confidence in our ability to pay our debts.”
Commenting on measures to boost growth, Tim Knox, Director, commented:
“Some measures were certainly welcome: raising the state pension age is a fantastic measure which will both save money and generate growth (it has been calculated that raising the state pension age to 70 would add 0.5% (or about £10 billion) to the growth rate).
But many of the measures announced today amount to little more than Government meddling. It remains to be seen how far underwriting capital in the wholesale markets will actually find its way to SMEs, whilst the effectiveness of the National Infrastructure plan will depend on how quickly private investment could be tapped.
The harder the times, the greater the temptation for any Chancellor to indulge in initiativitis. A few hundred million quid can be thrown at a particular region or demographic group and the headlines can be dissipated (or so it is hoped). The following (not comprehensive) list indicates how, even with another £145 billion of debt being incurred over the lifetime of this Parliament, the Chancellor still felt he should spend your money on the following schemes.
- A £50 cut in water bills for families in the south-west of England (£30 million).
- Free childcare places for 260,000 two-year-olds (£650 million).
- £1.2bn for school building projects.
- £5 billion for 35 new infrastructure projects, including new rail lines and superfast broadband.
- A £250m support package for energy-intensive firms.
- £1bn “youth contract” to subsidise six-month work placements for 410,000 young people.
- £1bn business finance partnership to raise money for medium-sized firms.
- Regional Growth regeneration fund to get £1bn in extra funding.
- A restriction on rail fare increases
- £50m to safeguard the future of cross-border sleeper train services
Well, that’s another £10 billion gone. The equivalent of £400 for every household in the country. Or an immediate halving of the rate of corporation tax (from 25% to 12.5%, where we would be at Irish levels).”
Date Added: Tuesday 29th November 2011