Britain’s economic prospects take a hammering in Chancellor George Osborne’s autumn statement, as Economics Editor Faisal Islam explains.
Speaking in the House of Commons this lunchtime, Chancellor George Osborne was forced to admit that the government’s projections of economic growth were overly optimistic.
The Office for Budget Responsibility (OBR) revised the growth forecast down from 1.7 per cent to 0.9 per cent, and next year, from an optimistic 2.5 per cent to 0.7 per cent. This comes a day after the OECD think tank warned of a double-dip recession.
But what does it all mean for you? Channel 4 News spoke to Mike Warbuton, director at Grant Thornton, about the implications for the average Briton.
Because of the wider economic backdrop, this autumn statement was all about rearranging a limited fund of money, he told Channel 4 News. “The chancellor didn’t have any money to give away. In essence, everything he did would create both winners and losers.”
If you are in business or have a mortgage, it’s a good thing. If you’re a saver, particularly pensioners who rely on their savings for income – in real terms, inflation is removing the value of their funding. Mike Warburton, Grant Thornton
Some of the headline points for consumers include a pledge to keep interest rates low which is “a double-edged sword”, said Mr Warburton.
The dramatically low growth figures translate to fewer jobs and little hope of reducing unemployment, he added. “Given those constraints, I think George Osborne has really done the best he can to encourage the growth of opportunities for employment because he’s basically financed a package for business, using guarantees for banks to finance business.”
“If you are in business or have a mortgage, it’s a good thing. On the other hand if you’re a saver, particularly pensioners who rely on their savings for income – in real terms, inflation is removing the value of their funding.”
The chancellor is trying to boost growth – and reduce unemployment – by giving tax breaks to businesses, encouraging them to spend money, invest, and recruit. PwC welcomed the proposals for 50 per cent tax relief and a one-year capital gains tax holiday for investment start-ups.
“Anything that encourages investment into growth companies has got to be a good thing for enterprise,” said Mary Monfired, PwC partner, while CBI welcomed what it called a “Plan A Plus” autumn statement, which provides an “imaginative framework for UK businesses”.
Amid the good news announcements for small and medium business, the chancellor also reiterated the focus on large -cale infrastructure, including huge construction projects across the UK and leveraging private sector investment.
This is going to be a long hard slog. We’ve got two years of growth at less than 1 per cent – that means it’s very hard to reduce overall levels of unemployment. Mike Warburton
“Those are going to be major projects for the good and long-term economic growth of the country, but in the medium term it’s going to be very good for jobs,” said Mr Warburton.
Echoing Margaret Thatcher’s housing policy of the 1980s, Mr Osborne has introduced a 50 per cent discount for council tenants on the purchase of their own home. The money generated will go into new housing. As he announced last week, the government will also act as a guarantor for house buyers, allowing people to put down a 5 per cent deposit on a house.
Good news for motorists: the planned 3 pence a litre rise is not going to go ahead in January and the increase for later in the year will be 2 pence less than planned. Rail price rises will also be capped at 6 per cent in January, instead of the planned 8 per cent.
The chancellor intends to double the number of free part-time nursery places for the most deprived two-year-olds to 260,000. Schools will also get an additional £1.2bn, half of which will go to local authorities to increase school places, and the rest will go towards boosting Michael Gove’s reforms, including funding for 100 more free schools.
Despite the business-friendly autumn statement, which should encourage hiring, and a range of measures aimed at tackling youth unemployment, including the youth contract, there is no getting round the poor predictions for growth. “Fundamentally, there is no quick fix to the economy,” Mr Warburton told Channel 4 News. “This is going to be a long hard slog.
“We’ve got two years of growth at less than 1 per cent – that means it’s very hard to reduce overall levels of unemployment.”
Public sector pay is already frozen at a rise of 1 per cent, and this will be continued for two more years. In addition, the OBR has also forecast a rise in total public sector job losses from 400,000 to 710,000 – a stark contrast to the benefits for the private sector.
Some parts of the working tax credit will be frozen, and plans for a £110 above inflation increase to the Child Tax Credit will be dropped. The Child Poverty Action Group said the move would result in a rise in child poverty and result in 100,000 more children in poverty.
“Make no mistake, this means children in the poorest homes are at risk of going cold and hungry to pay for the new schemes the chancellor has announced today,” said Citizens Advice chief executive Gillian Guy.
Today’s statement is likely to fuel the fire before Wednesday’s public sector strike on pensions. He announced a rise in the pension age from 66 to 67 in 2026 – a decade earlier than planned – and a move that will affect anyone over the age of 52.
Michelle Mitchell, charity director for Age UK, said the news was a “bitter blow”.
“Average life expectancy must not be the only factor that is considered, as at the moment the huge disparities in healthy life expectancy across the country mean that the poorest socio-economic groups will be required to sacrifice proportionately more of their retirement,” she said.
Despite high profile lobbying from a range of supporters, Mr Osborne will not be introducing a “Tobin tax” on banks’ financial transactions.
Instead, he is increasing the bank levy by about 10 per cent, from 0.075 per cent to 0.088 per cent. “That is I suspect because it’s important for him to show that banks are paying, as he put it, their fair share,” said Mr Warburton.
The chancellor announced changes to red tape in business, essentially cutting employees’ rights by loosening of health and safety, and making it harder to bring tribunals against employers.
“Unemployment and health and safety are arguably there for a reason. And if you cut these, obviously it’s not such a good thing, as people will feel less secure in their work. But the chancellor thinks this will increase growth.”