5 Dec 2013

Autumn statement: a ‘sugar high’ recovery for Osborne?

The chancellor had his revised growth updates to wave at Labour today. But the cost of living indicators which Ed Miliband’s got him looking at, are a little bit more precarious.

Low interest rates, at the heart of the government’s offer, would start rising when unemployment falls below 7 per cent, the Bank of England says.

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The Office for Budget Responsibility will have made George Osborne’s Christmas, by predicting that unemployment won’t slip below that threshold until the other side of the election. But you don’t always get what you want for Christmas.

When do earnings start out-stripping inflation? In 2014 according to the table on p84. But which sector you work in and at what level could very easily mean you don’t feel the benefit. Earnings nudge 0.3 per cent above the CPI measure of inflation in 2014 on the OBR’s estimates. The gap gets a bit chunkier as the future years rolls on.

At the heart of the OBR’s rosier view of life than the one if gave in March is that the economy hasn’t massively restored the lost capacity from the crash, it’s just that we’re getting an earlier lift.

The OBR has raised its own house price inflation forecast by 10 per cent up to 2017-18 since just last March. It warns of the danger of a house price bubble as one of the risks ahead, though the Treasury say that’s no more than the Bank of England does and, the Treasury claims, everyone’s being vigilant and house prices are still not back at their pre-2008 peak.

To make his numbers add up, George Osborne has slotted in a brand new 3.2 per cent cut in Total Managed Expenditure in 2018-19 (p121 of OBR Report). That takes the total planned cut in departmental spending to 23.7 per cent over 2010-2018. Remember, some departments are ring-fenced so the implication is upwards of one third of unprotected departments’ spending being cut over the 8 years.

Put it another way. We know through spending reviews how the government has cut and intends to cut from 2010 to 2015 and that comes to  14.1 per cent of departmental spending. We now have a big black hole of unallocated spending cuts still to come after the first year of the next parliament which is a further 9.6 per cent  of departmental spending …  two thirds of the already announced cuts all over again. But we don’t know where they fall.

There was plenty of politics played out in the chamber today. George Osborne’s team asked for a “wall of sound” to destabilise Ed Balls when he came to make his speech and they duly got it. Ed Balls struggled to be heard, tried to shout over the heckling and lost his voice and pace a bit in the process.

There weren’t many surprises in the Autumn Statement. The Treasury Permanent Secretary conducted  a review into authorised pre-briefing of the Budget recently and condemned such activity. I wonder if he’ll be conducting another such inquiry now?

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