The Autumn Statement raises a lot of questions, not least where is the money coming from?
Roy Batchelor, Professor of Banking and Finance at Cass, says that despite the upbeat sentiment of George Osborne’s announcement, there are clouds on the horizon.
George Osborne has delivered his first Autumn Statement as the Chancellor of a Conservative government. The Government also unveiled its Comprehensive Spending Review, setting out spending plans for the next five years.
Roy Batchelor, Professor of Banking and Finance at Cass Business School, explores how the Chancellor intends to fund the Government's plans.
"The Autumn Statement was an impressive piece of political escapology. Having walled himself in with massive “protected” pieces of government spending, and shackled his revenue raising powers by commitments to hold down National Insurance, Income Tax and VAT, the Chancellor has bounded free with a very upbeat performance, which avoids the damaging cuts to the tax credit, social care, police, education and science budgets that were widely feared. This is indeed good news for employment, and good news for the health of our people, and their ability to prosper in a technology-dominated future. His abandonment of the switch from tax credits to a higher minimum wage is also welcome – why destroy low-income jobs when you can keep a job-creating policy.
"We do need to look now at how the magic has been done, however. A lot will come from a new 'apprenticeship levy' on large firms, effectively a payroll tax that won’t do much for employment or pay. A deal of funding will come from cuts to 'Whitehall' budgets. While we may imagine that cutting meetings among mandarins is no bad thing, some services will be less well run, and some public sector job losses will occur not literally in Whitehall, but in regional offices. Some funding is coming from a local authority precept to add 2% onto their council tax bills to pay for social care. But this will be unevenly spread across the country, and monies raised are likely to be least in the areas of most need. Some funding is coming from a further increase in student debt, to finance much needed places for nursing training, and technical education.
"Three big clouds remain on the horizon, and have not really been addressed in today’s statement. First, we need to grow at a healthy pace for the forecast budget surplus to materialise by 2020. But the global economy is looking distinctly fragile. Second, we need somehow to build over 200,000 homes each year over the rest of the decade to accommodate our growing population. The Chancellor’s promise of new house building and expansion of home ownership acknowledges the problem, but nowhere near matches the target. Third, we need somehow to grow the NHS over the rest of the decade to care for our ageing, and increasingly demanding, population. Today’s promises patch up next year’s funding, but in the longer term the NHS cannot continue to find efficiency savings on the scale needed. We do not spend enough on our health, and we will have to pay more either through higher taxes or increased charges, a thought that would have altogether spoiled today’s mood".