Read more: Could Ed Balls have delivered the Autumn Statement?
Read more: What should Labour's economic policy look like?
“This is a big spending review by a government that does big things, it’s a long term economic plan for our country’s future,” George Osborne said of his joint Spending Review and Autumn Statement as he delivered it in the Commons today. It wasn't such a sweeping statement of ideological intent as this Summer's "budget for working people" with its surprise National Living Wage announcement, but it succeeded in allaying some of the biggest concerns of Osborne's critics on both sides of the house.
Tax Credit cuts announced in the summer will not take place—though it's worth noting that cuts to Universal Credit will go ahead, so many poorer people will still be hit eventually. The axe also won't come swinging for frontline policing, as some had speculated. With these concessions, and a hike in stamp duty for buy-to-let landlords, Osborne managed to head off many of Labour's most obvious attack lines. Perhaps that's why John McDonnell, the Shadow Chancellor, was forced into a bizarre exchange in which he quoted from Mao's Little Red Book before tossing it across the House.
Osborne benefitted from some strong economic circumstances—he has been able to keep his welfare cuts at their full amount and stick to his deficit-reduction timetable even while making these climbdowns in part because tax receipts are set to be higher than expected, thanks to a remodelling by the Office for Budget Responsibility, the apprenticeship levy and stamp duty changes. But today's announcements still signal a significant reduction in the size of the state and major cuts across the board—especially to departmental budgets, including losses of 37 per cent for the Department for Transport budget and 26 per cent for the Cabinet Office.
Here's the snap reaction of some experts to the Statement:
This was a politically shrewd statement given the political pressure the Chancellor was under. He is getting credit today for undoing mistakes he shouldn't have made in the first place, but having made the mistakes it was wise for him not to just do some clever tinkering. I have two doubts—the first is on tax credits. Osborne is saying that tax credits will be phased out and replaced by Universal Credit in 2018, but that the government will still achieve a £12bn saving in welfare by the end of this parliament. If the government are still planning to take £12bn out of welfare system then, it must be the case that people who were in receipt of tax credits will still lose out.
My second doubt concerns local councils. Osborne promised "new powers but also new responsibilities" and said that taking account of both the fall in grants and the rise in incomes spending on local government would be the same in cash terms as it is today. If you assume two per cent inflation than that amounts to a 10 per cent cut. So, councils are expected to exercise new powers and undertake new responsibilities with total pot of money which will be 10 per cent less in real terms than it is today. I think there will be pretty tough times for local services still to come, which the Chancellor hasn't quite owned up to.
Many will be celebrating the Chancellor's tax credit U-turn, and rightly so. After months of criticism and legislative rejection by the Lords, Osborne was left with little choice. Nonetheless, he should be credited for abandoning rather than fudging bad policy.
Unfortunately, the relief is temporary. The changes to Universal Credit work allowances announced in the Summer Budget remain. These damage work incentives and mean some poor families will be poorer. One of Osborne's initiatives to plug the savings hole is a revision to social housing rents to match those in Local Housing Allowance. The impact on social housing providers and claimants could be significant. Perhaps the most interesting of the new announcements is the extension of conditionality and support to a further 1.3 million claimants. The Blue book is vague on who these claimants are—something which the Government must urgently clarify—but whoever the cohort this is a big extension of Jobcentre Plus's role.
To generate a surplus in the public finances by 2019-20, cities across the UK will need to play a leading role in driving additional economic growth, so we welcome the Government’s focus on delivering devolution and addressing some of the big issues cities face—such as the urgent need for new housing and better transport infrastructure.
Continued cuts in local government funding will present local leaders with major challenges over the next few years. The Government’s plans to devolve more control over business rates and local asset sales will give places some more flexibility to negotiate a difficult funding environment ahead. But to secure growth in the long-term, national and local leaders will need to attract significant private sector investment alongside the public funding announced today. It’s also crucial that as these investment plans are put in place, more decisions about housing, skills, enterprise and transport are taken at city-region level.
The Chancellor's decision to use the proceeds of the 5 per cent "tampon tax" to fund women's charities has prompted the usual hysterical reaction on Twitter. Feminists are busy ranting about the injustice of us poor ladies being forced to use our "blood money" to pay for the abuse perpetrated against us by men, while ignoring the fact that the government is forced to retain it by EU law. While this is an obviously political move to soften the blow of retaining an unpopular tax (300,000 people signed an online petition to scrap it), I am personally happy that the money I am forced to spend on sanitary products every month will now go to a good cause. Isn't this what the sisterhood is for? Yes, menstruation is not a choice, but helping others is and too often, despite our best intentions, we fail to do more than shout about injustice on social media.
Clearly the idea of sanitary products being luxury items is laughable, but there is a serious need to help women who are the victims of gender violence. Does it matter where the money comes from? I will be brandishing my box of Boots own tampons with pride next month and I hope others will follow suit. My only question to the government would be—why not take it further and spend the VAT raised from the sale of condoms on sexual health charities? This would take the idea forward in a way which benefits both genders and might silence some of the online attacks against them.
Judged against the cuts to other departmental budgets the Spending Review represents a good settlement for the NHS, but it falls a long way short of placing NHS and social care on a sustainable footing for the future. An additional £3.8bn for the NHS next year will stabilise services in the short term, but smaller increases later on in the parliament and the requirement to implement seven day services will leave budgets stretched to the limit.
Although the full details are not yet clear, a large chunk of the extra money for the NHS has been found by cutting other Department of Health budgets including spending on public health—this is a false economy.
Some additional funding and new powers for councils to raise Council Tax provide some recognition of the pressures facing social care but are not raise enough to close a growing funding gap. Overall, the NHS and social care are now set for a decade-long funding squeeze which will see the largest sustained falls in spending as a share of GDP on both services in modern times.
In recent years the vast majority of housing measures have been demand side, so the chancellor’s decision to double capital investment in housing to £4bn is welcome. It is intended to enable private and social purpose housebuilders to deliver 400,000 new "affordable" homes by 2020.
Will it work? History shows that private house builders will not build in volumes that undermine their business models, so the fund will need to be structured to overcome this hurdle if the fund is to support increased supply rather than pay for homes that would be built anyway. But supporting measures such as loans for small builders, relaxation of planning, and funds to regenerate and densify council estates are encouraging and housing associations are poised to ramp up development.
The greatest question mark remains the affordability of this "affordable housing"—no extra cheap rented homes are planned and those on low incomes and working benefits will struggle to access mortgages and low cost homes for sale.
Perhaps the most notable aspect of the Chancellor's Autumn Statement in respect of pensions was what he did not say; that is, he was silent on most aspects of the tax treatment of retirement savings. However, equally significant was his ringing endorsement of the current "Triple Lock" policy, applied to state benefits in which annual increases are to be the higher of CPI, Average Weekly Earnings or 2.5 per cent.
These have been specifically exempted from the cash cap on annual welfare benefits although other pensioner benefits such as fuel allowances are certainly vulnerable. Currently, the OBR is forecasting that the triple lock will at 9 per cent of National Insurance Fund expenditure by 2040, rising to 23 per cent by 2070. But a recent report from the Government Actuary's Department—and quickly withdrawn under ministerial pressure—demonstrates that the possibilities for havoc with future budgets are huge, especially if Britain remains in a low-inflation, low-wage rise state. In a "worst case" "Japan-like" deflationary environment, National Insurance Fund Expenditure will rise by 243 per cent by 2070 from 9 per cent currently. But even using more modest assumptions of low inflation and slow wage growth, that could still see outlays from the NIF roughly twice their level today by 2070.
Whether the Triple Lock is defensible longer term is highly debatable. According to the Institute for Fiscal Studies, median income among those aged 60 and over is projected to be 1.8 per cent higher in 2014–15 than in 2007–08, compared with a 2.5 per cent fall for those aged 31–59 and a 7.6 per cent fall for those aged 22–30.
Read more: What should Labour's economic policy look like?
“This is a big spending review by a government that does big things, it’s a long term economic plan for our country’s future,” George Osborne said of his joint Spending Review and Autumn Statement as he delivered it in the Commons today. It wasn't such a sweeping statement of ideological intent as this Summer's "budget for working people" with its surprise National Living Wage announcement, but it succeeded in allaying some of the biggest concerns of Osborne's critics on both sides of the house.
Tax Credit cuts announced in the summer will not take place—though it's worth noting that cuts to Universal Credit will go ahead, so many poorer people will still be hit eventually. The axe also won't come swinging for frontline policing, as some had speculated. With these concessions, and a hike in stamp duty for buy-to-let landlords, Osborne managed to head off many of Labour's most obvious attack lines. Perhaps that's why John McDonnell, the Shadow Chancellor, was forced into a bizarre exchange in which he quoted from Mao's Little Red Book before tossing it across the House.
Osborne benefitted from some strong economic circumstances—he has been able to keep his welfare cuts at their full amount and stick to his deficit-reduction timetable even while making these climbdowns in part because tax receipts are set to be higher than expected, thanks to a remodelling by the Office for Budget Responsibility, the apprenticeship levy and stamp duty changes. But today's announcements still signal a significant reduction in the size of the state and major cuts across the board—especially to departmental budgets, including losses of 37 per cent for the Department for Transport budget and 26 per cent for the Cabinet Office.
Here's the snap reaction of some experts to the Statement:
Politics: local councils face a tough time
Peter Kellner—President of YouGovThis was a politically shrewd statement given the political pressure the Chancellor was under. He is getting credit today for undoing mistakes he shouldn't have made in the first place, but having made the mistakes it was wise for him not to just do some clever tinkering. I have two doubts—the first is on tax credits. Osborne is saying that tax credits will be phased out and replaced by Universal Credit in 2018, but that the government will still achieve a £12bn saving in welfare by the end of this parliament. If the government are still planning to take £12bn out of welfare system then, it must be the case that people who were in receipt of tax credits will still lose out.
My second doubt concerns local councils. Osborne promised "new powers but also new responsibilities" and said that taking account of both the fall in grants and the rise in incomes spending on local government would be the same in cash terms as it is today. If you assume two per cent inflation than that amounts to a 10 per cent cut. So, councils are expected to exercise new powers and undertake new responsibilities with total pot of money which will be 10 per cent less in real terms than it is today. I think there will be pretty tough times for local services still to come, which the Chancellor hasn't quite owned up to.
Economic outlook: political theatre
George Magnus—Senior Economic Advisor to UBSThe scrapping of tax credits and the reversal on cuts to the police were two excellent ways to distract the opposition. Coming back to the mechanics—if you look at the projection for real departmental spending, taking this tax year 2015/16 as your base, then in the space of six months the official projections have changed beyond recognition. In 2018/19, which is only three years from now, in March of that year departmental spending was supposed be £41.9bn lower than it was in 2015-16. In the July Budget after the election that had been cut to £15bn, and in today’s statement it was slashed further to £7bn. That’s a roughly £34bn reduction in the degree of debt austerity that had been expected in March which is a huge turnaround and the obvious question is—do the numbers add up?
On first scrutiny— the way they add up is because the Chancellor is expecting roughly a £29bn increase in tax revenues over this period and more to 2020 - almost half of which comes by way of a gift from the Office for Budget Responsibility in the form of VAT and other tax 'modelling assumptions'. These are basically about the flow of tax revenues to the Treasury in response to economic activity, and the OBR has offered the Chancellor a timely Christmas present. The rest of the revenues comes from other sources including the apprenticeship levy and the stamp duty increase—an extra 3% on buy to let and second homes. If Lab had announced that policy there would have been guffaws all over the country and from the Conservative benches, but this Conservative government is able to get away with it and draw plaudits for it. The question is whether these tax revenues will materialise as envisaged, and whether the economy will stay on course but for now the Chancellor has been able economically to decimate expected expenditure cuts, and raise spending in other areas, and re-occupy some important political ground in the centre. That all qualifies as a reasonably clever piece of political theatre. I still think the government is wilfully sacrificing a lot of revenue by not putting better off pensioners' income and perks on the table. Maybe next time?
Welfare: temporary relief
Charlotte Pickles—Senior Research Director at ReformMany will be celebrating the Chancellor's tax credit U-turn, and rightly so. After months of criticism and legislative rejection by the Lords, Osborne was left with little choice. Nonetheless, he should be credited for abandoning rather than fudging bad policy.
Unfortunately, the relief is temporary. The changes to Universal Credit work allowances announced in the Summer Budget remain. These damage work incentives and mean some poor families will be poorer. One of Osborne's initiatives to plug the savings hole is a revision to social housing rents to match those in Local Housing Allowance. The impact on social housing providers and claimants could be significant. Perhaps the most interesting of the new announcements is the extension of conditionality and support to a further 1.3 million claimants. The Blue book is vague on who these claimants are—something which the Government must urgently clarify—but whoever the cohort this is a big extension of Jobcentre Plus's role.
Cities: the private sector matters
Alexandra Jones—Chief Executive of Centre for CitiesTo generate a surplus in the public finances by 2019-20, cities across the UK will need to play a leading role in driving additional economic growth, so we welcome the Government’s focus on delivering devolution and addressing some of the big issues cities face—such as the urgent need for new housing and better transport infrastructure.
Continued cuts in local government funding will present local leaders with major challenges over the next few years. The Government’s plans to devolve more control over business rates and local asset sales will give places some more flexibility to negotiate a difficult funding environment ahead. But to secure growth in the long-term, national and local leaders will need to attract significant private sector investment alongside the public funding announced today. It’s also crucial that as these investment plans are put in place, more decisions about housing, skills, enterprise and transport are taken at city-region level.
Women: the tampon tax is not "blood money"
Serena Kutchinsky—Digital Editor of ProspectThe Chancellor's decision to use the proceeds of the 5 per cent "tampon tax" to fund women's charities has prompted the usual hysterical reaction on Twitter. Feminists are busy ranting about the injustice of us poor ladies being forced to use our "blood money" to pay for the abuse perpetrated against us by men, while ignoring the fact that the government is forced to retain it by EU law. While this is an obviously political move to soften the blow of retaining an unpopular tax (300,000 people signed an online petition to scrap it), I am personally happy that the money I am forced to spend on sanitary products every month will now go to a good cause. Isn't this what the sisterhood is for? Yes, menstruation is not a choice, but helping others is and too often, despite our best intentions, we fail to do more than shout about injustice on social media.
Clearly the idea of sanitary products being luxury items is laughable, but there is a serious need to help women who are the victims of gender violence. Does it matter where the money comes from? I will be brandishing my box of Boots own tampons with pride next month and I hope others will follow suit. My only question to the government would be—why not take it further and spend the VAT raised from the sale of condoms on sexual health charities? This would take the idea forward in a way which benefits both genders and might silence some of the online attacks against them.
Health: a long squeeze
John Appleby—Chief Economist at the Kings FundJudged against the cuts to other departmental budgets the Spending Review represents a good settlement for the NHS, but it falls a long way short of placing NHS and social care on a sustainable footing for the future. An additional £3.8bn for the NHS next year will stabilise services in the short term, but smaller increases later on in the parliament and the requirement to implement seven day services will leave budgets stretched to the limit.
Although the full details are not yet clear, a large chunk of the extra money for the NHS has been found by cutting other Department of Health budgets including spending on public health—this is a false economy.
Some additional funding and new powers for councils to raise Council Tax provide some recognition of the pressures facing social care but are not raise enough to close a growing funding gap. Overall, the NHS and social care are now set for a decade-long funding squeeze which will see the largest sustained falls in spending as a share of GDP on both services in modern times.
Housing: is it affordable?
Emma Maier—Editor of Inside HousingIn recent years the vast majority of housing measures have been demand side, so the chancellor’s decision to double capital investment in housing to £4bn is welcome. It is intended to enable private and social purpose housebuilders to deliver 400,000 new "affordable" homes by 2020.
Will it work? History shows that private house builders will not build in volumes that undermine their business models, so the fund will need to be structured to overcome this hurdle if the fund is to support increased supply rather than pay for homes that would be built anyway. But supporting measures such as loans for small builders, relaxation of planning, and funds to regenerate and densify council estates are encouraging and housing associations are poised to ramp up development.
The greatest question mark remains the affordability of this "affordable housing"—no extra cheap rented homes are planned and those on low incomes and working benefits will struggle to access mortgages and low cost homes for sale.
Pensions: what he didn't say
Norma Cohen—Former FT Demography Correspondent and PhD candidate at Queen MaryPerhaps the most notable aspect of the Chancellor's Autumn Statement in respect of pensions was what he did not say; that is, he was silent on most aspects of the tax treatment of retirement savings. However, equally significant was his ringing endorsement of the current "Triple Lock" policy, applied to state benefits in which annual increases are to be the higher of CPI, Average Weekly Earnings or 2.5 per cent.
These have been specifically exempted from the cash cap on annual welfare benefits although other pensioner benefits such as fuel allowances are certainly vulnerable. Currently, the OBR is forecasting that the triple lock will at 9 per cent of National Insurance Fund expenditure by 2040, rising to 23 per cent by 2070. But a recent report from the Government Actuary's Department—and quickly withdrawn under ministerial pressure—demonstrates that the possibilities for havoc with future budgets are huge, especially if Britain remains in a low-inflation, low-wage rise state. In a "worst case" "Japan-like" deflationary environment, National Insurance Fund Expenditure will rise by 243 per cent by 2070 from 9 per cent currently. But even using more modest assumptions of low inflation and slow wage growth, that could still see outlays from the NIF roughly twice their level today by 2070.
Whether the Triple Lock is defensible longer term is highly debatable. According to the Institute for Fiscal Studies, median income among those aged 60 and over is projected to be 1.8 per cent higher in 2014–15 than in 2007–08, compared with a 2.5 per cent fall for those aged 31–59 and a 7.6 per cent fall for those aged 22–30.
