Chancellor George Osborne's autumn statement preview
Sunday, 27 November 2011 11:16
By Kate Saines
With youth unemployment at a 30-year high, a public sector strike looming and a gaping deficit to fill the UK will be looking for more than a glimmer of hope when the Chancellor of the Exchequer delivers his Autumn Statement on Tuesday.
But if you want to hear good news, George Osborne’s speech might not be the place to find it.
That’s according to the political pundits who predict this year’s Autumn Statement – formerly known as the pre-budget report, which outlines the government’s economic forecast and spending decisions - will be gloomy to say the least.
Debt
George Osborne will be under pressure to explain how he plans to get the country’s economy moving, but so far the task has been an uphill struggle to say the least.
Last week when Prime Minister David Cameron addressed business leaders at the Confederation of British Industry (CBI) he warned the UK was well behind when it came to clearing up its debt.
“Getting debt under control is proving harder than anyone envisaged,” he admitted. “High levels of public and private debt are proving to be a drag on growth which in turn makes it more difficult to deal with those debts.”
And so it is expected George Osborne will announce on Monday that borrowing in the UK is much higher at this stage than previously expected. Figures released last week by the Office for National Statistics (ONS) suggest a budget deficit in October 2011 of £4.5 billion. Meanwhile, public sector net borrowing was at £6.5 billion.
This was £1.2 billion less than last year, according to the Office for Budget Responsibility (OBR), which is due to release its updated forecast on the economy after Mr Osborne’s speech.
But, Labour leader Ed Miliband said on Thursday the Chancellor’s Autumn Statement will show the government’s plans for easing the huge deficit have failed.
He said in a speech to the Institute for Public Policy Research (IPPR) that the government’s forecasts revealed there would be £46 billion additional borrowing in the coming years, and that recent forecasts had put that figure at over £100 billion.
And, he added, when a further rise in planned borrowing was confirmed by the OBR next week it would be a ‘further catastrophic blow to the Government’s credibility’.
“The Autumn Statement,” he said, “will mark a crucial moment in the economic course of our country.
“It will be the moment that we learn the biggest economical gamble in a generation has failed.”
Credit easing
The Chancellor is also expected to reveal plans for credit easing in the Autumn Statement.
In his speech last week to the CBI, David Cameron explained: “This will use the strength of the government’s balance sheet to pump billions of pounds into reducing the cost of loans for small and medium-sized businesses.”
Credit easing, in essence, is the process of making credit more readily available for businesses. Experts believe this will be done by using public money to purchase corporate bonds (debt issued by companies).
The aim is, by buying these bonds from small companies, the Treasury will be injecting cash into these businesses.
According to the Federation of Small Businesses (FSB), if run properly, the scheme could boost employment because it would allow businesses to grow. But there are fears credit easing will end up benefiting bigger companies.
John Walker, national chairman of the FSB said: “Any proposals brought forward on credit easing must address the issue of small firms’ access to finance and not just offer additional funds for larger businesses.
“It must also bring competition into the market, and start to break the stranglehold of the big banks.”
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Employment
Boosting employment, particularly for the young, is top of many people’s Autumn Statement ‘wish lists’.
George Osborne’s speech is expected to outline what savings will be made to fund the £1 billion plan to create subsidised work and training placements for 18 to 24 year olds.
The youth contract scheme, announced by Deputy Prime Minister Nick Clegg last week, aims to get more young people into work by providing government subsidies to businesses so they can offer short-term placements for the younger generations.
But where, exactly, this money is coming from is yet to be revealed. There are fears money from the tax credit budget could be sacrificed to make up the funds. Nick Clegg told the BBC the money would not be paid for by one specific tax or spending measure.
The government is under immense pressure to create more jobs, particularly after recent figures showed unemployment soaring to 2.62 million.
John Cridland, director general of the CBI said: “These figures underline why we need urgent action to help our young people take their first steps in the labour market.
“A generation risks being scarred by the devastating effects of long-term unemployment. We are calling for actions for jobs now, with a clear plan to get the UK working, focusing on our young people.”
Borrowing and saving
With the government recently announcing its housing strategy it’s likely the Chancellor will touch on this, including plans to make mortgage borrowing easier through the new build indemnity scheme.
But many will be looking to see if George Osborne has any solutions for the many people who cannot benefit from its housing schemes. Reassurance that present tax breaks for some homeowners are not ditched will also be sought.
The Building Societies Association (BSA) said it hoped to see confirmation the stamp duty holiday for first-time buyers purchasing properties up to £250,000 would continue.
It also called for help for those struggling to pay their mortgages and to make ISA transfers more flexible to help adult savers.
Fuel
Drivers will be hoping the Chancellor will scrap plans to increase fuel duty in the New Year by 3p a litre.
Indeed, George Osborne is coming under intense pressure to do so, not least following an e-petition signed by 110,000 people which called for action on fuel prices.
And political commentators say such a move could go a small way to softening the blow delivered by the rest of the speech.
Tom Ironside, director of businesses at the British Retail Consortium, said: “Escalating transport costs are responsible for much of the inflation which the UK is currently battling.
“The Chancellor should give households further help when he delivers his Autumn Statement next week by scrapping next year’s planned increases in fuel duty.”
What else will be in the Autumn Statement?
It is expected George Osborne will announce plans in the statement to set aside £600 million to build new free schools in England.
This will fund the creation of 100 schools, which will be set up and run independently by parents, teachers, businesses, charities or other organisations but financed by government.
And there is speculation the Chancellor will also make a ‘spending switch’ and move money used on a day-to-day basis to fund long-term capital spending projects.
A planned increase of the consumer prices index (CPI) rate of inflation, 5.2 per cent, plus three per cent, so 8.2 per cent in rail fares is likely to be scaled back to just CPI plus one per cent, 6.2 per cent.
This would involve spending more on the UK’s infrastructure – things like roads and broadband. Meanwhile it has also emerged a cut in pension contribution tax relief may be announced in Tuesday’s speech.
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