This is an intensely political Autumn Statement with an economic argument behind it.
The future course of deficit reduction is specifically designed in order to underline the Conservatives’ long term focus. But the argument for it is made in terms of reducing the cost of government borrowing for the things that are worth doing, like building growth-boosting infrastructure. There are plenty of nods and winks – freezing fuel duty, passing on the rise in the personal allowance to higher rate taxpayers – to the voters Osborne wants to win over and yet he can refer to economic theory with a straight face when he has to as well.
While not mentioned in his speech, SMF analysis of the OBR’s report shows the Chancellor is planning spending cuts that would go far beyond what is needed to eliminate borrowing. Although borrowing will have turned into a surplus by 2018-19, the OBR’s figures show that the current Government plans to keep cutting beyond that, to create an overall annual surplus – after including investment as well as day-to-day spending –of over £23 billion by the end of the next Parliament.
On the spending cuts planned, SMF Chief Economist, Nida Broughton said:
“What exactly is the Chancellor trying to achieve here? Their plans appear to go far beyond even what fiscal conservatives would view as strictly necessary. The Government has given the public no rationale for these extra cuts. As a proportion of GDP, Government spending is being taken back to the level last since in 1938. If there was room for doubt before, there appears to be little now. A dramatically smaller state, not fiscal credibility, is the real goal here.”
On the eye catching stamp duty announcements, SMF Director, Emran Mian said:
“The biggest talking point obviously is the stamp duty change. Reduces transaction cost for vast majority of house purchases. But that might just drive a new round of house price rises, other than at the top end of the market. Could be an odd dynamic: London house prices at top of the market fall, everything else rises, hitting affordability for the average buyer. That said any impact on rises in bulk of the market is likely to be small.”
On higher education, skills and apprenticeships, SMF Director, Emran Mian said:
“It is good news that there will be more support for postgraduate students, a loan of up to £10,000. But it’s clear that criticism of the sustainability of the student loans system has had some impact within Government. The postgraduate loans will only be available to students aged under 30. The purpose of the age limit is to avoid giving loans to older students who will have higher earnings for less time before retirement and hence make lower repayments.
“There is also a hint that the threshold at which loans start to be repaid – currently £21,000 – will be frozen for 5 years. This has broader significance. HMRC will not want to operate a different repayment threshold for postgraduate and undergraduate loans. So it’s likely that the repayment threshold for all student loans is going to be frozen to help manage costs.”
“The same hesitation about the costs of upskilling is evident in the big policy measure on apprenticeships. The government will abolish employer National Insurance Contributions for those offering apprenticeships to people aged under 25 but the measure doesn’t come into effect until 2016. However action to rebalance apprenticeships for the benefit of young people is needed now. Only 18% of apprentices were aged over 25 in 2009/10; that proportion of older apprentices went up to 45% by 2012/13.”
NOTES TO EDITORS:
- The SMF is a leading independent UK think tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach