BRITAIN will be stuck in the economic doldrums for at least another five years, George Osborne will warn in tomorrow’s Autumn statement.
The nation will suffer continued spending cuts and be forced to live on short rations until at least 2018 as he battles to get the economy back on its feet, he will tell MPs.
The Office of Budget Responsibility will announce that growth will be anaemic for years to come.
But he will insist there will be no turning back on plan A – and to swerve off his current course would be a “disaster” for the UK.
The Chancellor believes the British public understands the depth and seriousness of the economic crisis and is already braced for more years of pain.
He has three aims:
- To steady the markets and ensure Britain retains its AAA credit rating
- To differentiate the Coalition from what he’ll say is Labour’s “more debt” strategy
- To position the Conservatives for the next General Election as the “better the devil you know” party.
The Chancellor is keen to stress a political message of “fairness” and will say everyone must take their share of pain.
Tax relief on pensions for the wealthy will be slashed but there will also be the start of a further clampdown on welfare scroungers.
Mr Osborne has refused to share details of his Autumn statement with a wide circle in the Coalition – the main cause of his disastrous Budget which was leaked by Lib Dems.
But the Chancellor won’t be empty-handed when he goes to the chamber. He has a long list of measures aimed at rebalancing Britain’s economy.
Chief amongst them is a drive to open yet more academies and free schools.
He and the Prime Minister are determined to target specific groups of voters like mums who could give them the majority they need to rule alone.
This means offering better schooling for a generation of children, they believe.
Today, Mr Osborne seized the headlines by ordering a £5billion splurge on schools, science and transport projects.
The cash will come from another round of Whitehall spending cuts with Cabinet ministers being ordered yesterday morning to shave more from their budgets.
He demanded a one per cent reduction in current budgets from 2013-14, and two per cent in election year.
Ominously for civil servants, the Chancellor held up Michael Gove as an example to follow. The education secretary has recently vowed to cut 1,000 staff.
There will be a raft of measures to stimulate the economy which will run alongside the schools, science and transport work.
In other measures, 30 new gas fired power stations will be given the green light for building.
And Mr Osborne will reintroduce the controversial private finance initiative for more infrastructure projects – but with safeguards to stop the taxpayer being ripped-off through bad deals.
Markets are already expecting the Chancellor to find ways of sticking to his deficit and debt targets without abandoning them.
The economy at a glance
The Chancellor will deliver his Autumn Statement alongside the latest growth and borrowing forecasts from the Office of Budget Responsibility (OBR). We have provided a summary of the need-to-know figures, what the forecasts were, the likely revisions, and what it all means for the Chancellor.
|Current OBR GDP forecasts growth of 0.8% in 2012, 2% in 2013 and 3% in 2015.
|Analysts are indicating that the OBR GDP forecasts will have to be revised down, to around 0% in 2012, 1% in 2013 and between 1.5% and 2% by 2014-2016.
|Downward GDP revisions will hugely impact the Chancellor’s plan to eliminate the structural deficit by 2017. Coupled with rising borrowing and reduced tax receipts, spending plans may need to be revised for the coming years.
|The OBR forecast growth in tax revenues for 2012 of 3.7%.
|In the first seven months of the financial year tax revenues have only risen by 0.4%, so it looks likely this estimate will be revised down.
|The IFS estimates that if the low growth in tax revenues continues for the rest of the year, revenues would undershoot the OBR’s forecast by £17 billion. This is likely to increase political pressure to clamp down on corporate tax avoidance, but the Chancellor will struggle to act unilaterally.
|Public Sector Borrowing
|The OBR have forecast public sector borrowing of £120 billion for 2012.
|If currently monthly public sector borrowing levels are maintained, total borrowing for 2012 is likely to reach around £133 billion – £13 billion more than the Chancellor was aiming for.
|Increases in borrowing combined with lacklustre growth figures will put pressure on the Government to revise their deficit reduction targets again, and review current spending forecasts up to 2016-17.
|Launched in the Summer of 2012 the Treasury’s Funding for Lending Scheme (FLS) aimed to encourage banks to lend more money to businesses and households by reducing costs to banks.
|Statistics released yesterday highlight that six lenders drew £4.36 billion from the state-backed scheme but only three of them passed on the lower costs to borrowers. Part-nationalised banks Lloyds Banking Group and RBS both decreased lending.
|The Chancellor is likely to face harsh criticism from Labour on the apparent failure of the scheme, and it will no doubt be used as an example of the Government failing to stimulate economic growth.
What else to expect
Instead of a “mansion” tax or a new higher council tax band, the Chancellor looks set to raise revenue by further reducing the annual limit of tax relief that can be claimed on pension contributions from £50,000 to between £40,000 and £30,000. This could raise up to £1.8 billion for the Government.
Pressure from his own backbenchers means that the Chancellor will cancel the 3p fuel duty escalation until at least the next Budget. However, an inflation-only road tax rise is likely to go ahead as planned and a 2.5% rise in air passenger duty from April is also set to be confirmed.
There has also been speculation that the entrepreneurs’ Capital Gains Tax relief could be extended to all employees. We should also expect more on clamping down on corporate tax avoidance following the announcements on Monday of an extra £77 million for HMRC to focus on enforcement.
The Chancellor is expected to announce tax breaks for companies that carry out fracking, arguing that boosting the shale gas industry is vital to economic growth. He is also planning to create a new regulator for gas, with the Government’s Gas Strategy expected alongside the Statement. This was meant to be published with the Energy Bill, but the Chancellor separated the announcements to emphasise the central role that gas will play in the energy mix.
The Chancellor is due to provide up to £50 billion in funding to local authorities and development funds to boost growth, backing Lord Heseltine’s proposals. Measures are also expected to boost house building, with Osborne set to confirm HM Treasury underwriting of new developments.
The announcement of an additional £1 billion of loans through the Business Bank is also expected. This comes shortly after the Funding for Lending scheme figures were less positive than the Chancellor will have hoped for.
Osborne has ordered most government departments to cut an extra 1% next year and a further 2% the following year to fund £5 billion to be spent on capital projects across education, transport and science. Around £1 billion of this will go towards building 100 new free schools and academies.
The next round of cuts in funding to local authorities is due to be announced shortly after the Autumn Statement, if not in the statement itself. Changes to the PFI system to increase transparency and reduce costs are also expected, along with the announcement of massive cost savings in the running of schools, hospitals and roads as a result of the PFI system.
There is expectation of an announcement from industry on further progress and support for the East London ‘Tech City’ scheme, which will boost the Chancellor’s reputation with business.
Also expect mention of the 4G spectrum, long overdue in 2013, as evidence that the Government are raising revenue and encouraging new infrastructure. Along with that, new planning measures to help encourage mobile coverage rollout are due to be announced in the next couple of weeks.