Economy is healing – Osborne
CHANCELLOR George Osborne turned his Autumn Statement into a mini-Budget today as he looked to turn attention away from bleaker figures on the economy.
Mr Osborne looked to bolster business confidence with new tax allowances and promises of an extra £5.5bn of capital spending along with reforms to the private finance initiative to encourage private investment in public sector assets.
And despite downgrades to growth forecasts from the Office of Budget Responsibility, he argued changing the Government’s strategy would be a “disaster”.
Coverage of the Autumn Statement is brought to readers of TheBusinessDesk.com in partnership with Ernst & Young.
In a statement lasting 45 minutes, Mr Osborne promised £1bn of investment in major road schemes including upgrades to the A1 and a link between the M1 and A5.
He also set out plans to spend on superfast broadband for a series of towns and cities including York, Coventry and Salford.
Mr Osborne said there would be new funding for Local Enterprise Partnerships and from April 2015 money for transport, skills and housing would be put in a single pot that LEPs will be able to bid for.
An extra £350m will also be put into the Regional Growth Fund.
In an echo of Prime Minister David Cameron’s speech to the CBI earlier this month, Mr Osborne said the Government’s priority was to equip the country for the “global race” against dynamic emerging economies.
“It is taking time but the British economy is healing after the biggest crash in our lifetimes.
“People know there are no quick fixes but people want to know we are making progress. The message from today’s Autumn Statement is we are making progress.”
Mr Osborne told MPs the main rate of corporation tax will be cut by 1% to 21% from April 2014, the temporary doubling of small business rate relief scheme will be extended until the same month while the additional investment allowance will be raised from £25,000 to £250,000 for two years.
The Government’s proposed business bank will receive an £1bn in funding and spending on UK Trade & Investment will grow by 25% a year.
Defending the Government’s record, Mr Osborne said under the Coalition 1.2m jobs had been created in the private sector and the deficit as a share of GDP had fallen from 11.2% to 6.9%.
Mr Osborne said the Government was on track to meet its target to eliminate the deficit in five years but admitted the Coalition would miss its target to have debt as a share of GDP – known as the supplementary target – falling by 2015/16.
New figures from the Office for Budget Responsibility saw its growth forecasts cut for this year and next to -0.1% and 1.2%, down from 0.8% and 2% respectively although the figures on public finances were better than expected.
Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said: “This was a Budget in all but name, with a long list of policy announcements. That the OBR’s forecasts allowed the Chancellor to make it fiscally neutral was something of a surprise given the deep downgrades to the growth forecasts.
“Those revisions to the growth forecasts look sensible and bring them closer into line with both our forecasts and the market consensus. It is the revisions to the forecasts of the public finances which require closer scrutiny.
“At first glance it appears that the better than expected judgement is a result of the OBR taking the sensible decision to attribute much of the recent weakness to cyclical, rather than structural, factors. This was a pleasant surprise as we had feared a repeat of last year’s decision to attribute the bulk of the shortfall in revenues to structural factors.
“In terms of policy, the greater focus on capital spending is right. But we feel that he could have both gone further and increased infrastructure spending without cutting current spending and the impact on growth from these measures will be negligible.
“The decision to push the target date for the supplementary target back by a year looks sensible. However, the Chancellor will be crossing his fingers that this set of OBR forecasts proves to be accurate, as he has little leeway on the new forecasts and there is a risk that he may have to revisit the supplementary target.”
Confronting the Government’s critics on tax avoidance, Mr Osborne said HMRC was collecting £7bn more in tax due than when the Coalition came into office and said there would be new efforts to ensure multinational companies pay their share. New measures on tax avoidance and evasion could raise £2bn, he claimed.
The new capital spending will be paid for through savings on welfare, overseas aid and other departmental spending.
He rejected plans supported by the Liberal Democrats for a so-called ‘mansion tax’ targeting the wealthiest but said from 2014/15 the annual tax relief on pensions will be cut from £50,000 to £40,000 with the lifetime allowance cut from £1.5m to £1.25m.
Mr Osborne also announced rises in working age benefits would be limited to 1% for the next three years.
The basic rate income tax allowance will rise £235 to £9,440 while the higher rate income tax threshold will rise 1% in 2014/15 and 2015/16. State pensions will rise 2.5%.
Taking on criticism of the Government’s record on energy, the Autumn Statement included promises of a new push on shale gas extraction and a programme of new gas-fired power station.
He told MPs that if all Whitehall departments followed the example of the best performers £1bn could be saved from administrative budgets.
The Chancellor said the Government would not be seeking a planned saving of 1% on local government spending next year but would expect a 2% saving in the following year.
The Coalition also looked to offer consumers some Christmas cheer with the cancelling of a planned 3p tax rise in fuel duty.
The Government had previously suggested introducing more flexibility in public sector pay and while he reject the idea for the NHS and prisons he announced proposals would be brought forward for teachers.
