Thursday, 26 November 2015

Autumn Statement

The Autumn spending review was unveiled in the Commons yesterday. This came after a post-election budget, all the way back in July.

Since George Osborne has been Chancellor of the Exchequer, all government budgets have been audited by the Office of Budget Responsibility.

In the pre-2010 era, governments pretty much made their budgets, relying on their own forecasts. This afforded Mr Osborne's successors a higher level of flexibility.

For the last 5yrs, it's been the OBR's job  to ascertain whether budgets pass muster. They haven't been amazingly good at forecasting, it must be noted.

The OBR's first budget assessment/forecast ended up proving to be far too optimistic, in June 2010. In fact, it was overly optimistic for the subsequent March budgets, until the economy began to pick up in 2013.

Now we're told to expect GDP growth to average 2.4% in 2015-19. That's a tad below the UK's long term "trend rate" of about 2.8%. But it's enough to keep a lid on unemployment.

The fiscal story is interesting. Mr Osborne's detested tax credit cuts have been shelved, all £4.4bn of them. The police service has also avoided cuts. "How will he pay for it?" you might wonder.

Here enters Mr Osborne's saviour; his budgetary golden egg. He's expecting higher tax receipts. As wage growth continues to outpace inflation, it's assumed people will be in a better position to keep the coffers flowing nicely.

Of course, this all assumes a new recession or slowdown doesn't occur. In the "worst case scenario", we enter a new recession. If this happens, the government will fail to achieve a surplus by 2020, and blow their fiscal plans out of the water...again!

The central forecast, of mild growth, allows Mr Osborne to achieve this surplus. If growth accelerates, the deficit will vanish sooner.

Despite the scrapping of the cuts to tax credits, there are still concerns other measures will still hit households hard. The IFS estimates that other changes to benefits will hit 2.6m people, to the tune of about £1,600 a year.

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