Ten things to look out for in the Autumn Statement
By Peter Hoskin
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Even though it will be shorter and more transparent than those from the Gordon Brown era, tomorrow's Autumn Statement will still be no picture book. Here are ten preliminary questions that are worth asking to make sense of it all:
1) Will George Osborne break his fiscal rules? This is the biggun, the one that everyone is poised for. After writing two fiscal rules into his first Budget, there's a real possibility that Mr Osborne could break one — or perhaps even both — of them tomorrow. I went over the whats and wherefores in a lengthy post last week, so I won't do that here. Suffice to say that the rule most likely to tumble is the Chancellor's "supplementary rule" to have the national debt falling as a percentage of GDP by 2015. In the last Budget, debt was forecast to fall from 76.3 percent of GDP in 2014-15 to 76 per cent in 2015-16 — a modest decline, and one that may now have become a rise thanks to weak growth and slower-than-expected deficit reduction. Tomorrow's forecasts from the Office for Budget Responsibility will reveal all.
2) And, if so, how will he respond? If Mr Osborne breaks one or more of his rules, then he fundamentally has two options at his disposal. The first is to keep the rules in place, and say that he'll still endeavour to meet them as the economy improves. Another is to ditch them, perhaps to be replaced with alternative rules. Of course, he might also choose a mix of these options — keeping one rule in place and ditching the other, depending on which rule is broken.
I made the case last week for eradicating both of the current rules. This would be politically difficult for the Chancellor, but, then, what wouldn't be? In the case that he breaks one or more of his fiscal rules, tomorrow's Autumn Statement will be horribly uncomfortable for Mr Osborne. What it suggests is that it will take even longer to restore the public finances to sanity — which is to say, more austerity.
3) Or, if not, why not? Yet there's always the chance that Mr Osborne won't break his fiscal rules — at least not for now. In which case, the question would be: how's he pulled it off? Here, there are basically three possibilities. The first is simply that the fiscal situation is better than we feared, and the rules wouldn't have been broken anyway. The second is that the Chancellor has avoided breaking the rules, by writing more spending cuts and tax rises into the Autumn Statement. And the third is that he has bent the rules, perhaps by relying on the £35 billion windfall from the Bank of England that I explained last week. Let's hope against this final option in particular: Mr Osborne's standing may be diminished if he fails to meet his fiscal rules, but it would be levelled if he cheated in order to meet them. Thanks to social media and to greater interest in the public finances, any Brown-style ruses will be picked up quicker than they used to be. No-one would be kidded.
And its projections for tax revenue, in turn:
It's possible that both could be revised downwards, once again, tomorrow.
5) And what about jobs? The OBR also produces forecasts for unemployment. At the last Budget, unemployment was expected to peak at 2.8 million this year, before declining from the beginning of 2013 onwards:
Instead, however, unemployment has already fallen fairly steadily, to 2.5 million in the third quarter of this year — a level that that the OBR didn't expect until the final quarter of 2014. Surely these forecasts will be improved tomorrow.
6) How long will the squeeze continue? And another set of OBR forecasts: these ones for inflation and for wage growth. They enable you to produce a graph suggesting how long, in the OBR's eyes, prices will outpace people's pay. Here's how that graph looked at the last Budget, for both CPI and RPI inflation:
So, will the squeeze continue until 2013? Or will it go on for longer? The answer will matter not just to those folk who feel the effects every time they go to a supermarket, but also to the politicians pitching for their votes.
7) Action on fuel duty? Speaking of the squeeze, what will George Osborne do about fuel prices? He's already done a fair amount: introducing his "fair fuel stabiliser," and staving off 10p's worth of the duty rises that would have prevailed under Labour. But surely he'll have to do more, given the assurances he made to Tory MPs to prevent a parliamentary rebellion last month. The main question, then, is how the Chancellor will deal with the 3p rise in fuel duty that's currently scheduled for January. Postponing the rise may appeal to the fiscal disciplinarian in him, as it means that the Exchequer will get the money at some point. But the political strategist in him will surely be tempted to scrap it outright, for the reasons I blogged about recently.
8) What else is in it for the strivers? Aside from fuel, I'm sure Mr Osborne will scrabble around for other policies to help those hard-working, tightly-squeezed people that Westminster calls the "strivers". This could mean measures for first-time buyers, it could even mean further action to increase the income tax threshold to £10,000, but it's also worth keeping an eye out for a marriage tax break of sorts. Such a tax break would, admittedly, be unlikely: so far as we know, the Lib Dems remain opposed to it, and Tory ministers are talking about the next Budget as a more likely date. But the past few weeks have seen this flare-up as a concern among Tory MPs. Will Mr Osborne placate them in some way, whether with policy or with reassurances?
9) How much will be saved on benefits? It's reported that the Chancellor is to drop his plan to end housing benefit for the under-25s, but benefit cuts are likely to be one of the main themes of this Autumn Statement, nonetheless. The word to look out for, here, is "freeze". Will Mr Osborne manage to overcome Lib Dem opposition to a freeze on all working-age benefits? Or will that freeze be resticted to certain benefits, such as those relating to unemployment? Whatever happens, you can expect Mr Osborne to turn this into a positive theme in his Autumn Statement, just as he did on Sunday's Andrew Marr show. The Tory leadership is keen to present any benefits freeze as an issue of fairness, framing it against the efforts of the strivers.
10) Is it starting in America? At the last Budget, the OBR estimated the effect that two external shocks — further disorder in the eurozone, and an oil price spike — would have on our economy and public finances. This time around, it's worth checking whether those calculations still hold, and whether the OBR also considers other potential shocks, such as the fiscal cliff in America. This cliff is something that George Osborne warned about in a recent statement, and with good reason: even though Congress is likely to steer away from the edge, there could still be enough uncertainty to dent the US — and, therefore, the world — economy in the meantime. Don't be surprised if Mr Osborne warns about it again, tomorrow.