Details of the government's Autumn Statement were well flagged in advance, and Chancellor George Osborne is making much of sticking to his austerity principles and taking"difficult decisions", so there was not much in the way of surprises in today's speech. There are, however, a few key trends to note:
- Economic-growth expectations are picking up substantially, with the figure for 2013 now forecast at 1.4%, up from the 0.6% predicted in March. Growth will reach 2.4% next year, ahead of the earlier forecast of 1.8%. Much as the Chancellor would like to take credit, the reason for this success lies mainly in the improvement in the rest of the world. While he may disdain the idea, the recovery in the Europe, which accounts for 50% of our exports, is one of the key factors driving our domestic expansion. Another reason for the sharp upturn has been the sugar-rush policies of Funding-for-Lending and Help-to-Buy. However, we still fear that any increase in consumption driven by people taking on more debt won't be sustainable unless wages start to rise.
- While there is progress on reducing the deficit, with Osborne anticipating a possible government surplus by the end of the decade, progress is still too slow. We are still running a trade deficit, even after a significant decline in the value of sterling. And government debt is set to increase to 80%of gross domestic product in 2015 before it starts to decline.
- The Chancellor is starting to argue more forcefully in favour of tax cuts. It has long been accepted by experts that cutting taxes stimulates the economy, but the Treasury has now published data to show that a cut in corporation tax could stimulate growth enough to help offset a reduction in tax receipts.
- There's renewed emphasis by the government on helping smaller business while being tougher on large corporations. The Chancellor today announced some easing of business rates for smaller firms. At the same time – not wanting to pass up an opportunity for a bit of bank bashing – he increased the bank levy on the basis that"the country stood behind the banks in crisis; they now need to stand behind us." The distinction makes some economic sense; we need a successful small business sector in order to make the domestic recovery sustainable, while large corporations are more tied into to the global economy, and as a result aren't so central to our domestic fortunes. It's a pity though that the Chancellor didn't do more to try and encourage investment by companies, which in aggregate are holding record levels of cash.
- The government is quite sensibly targeting areas that need special attention. The removal of employers' national insurance contributions for younger workers will help boost employment in the section of society most hit by joblessness. The reduction in support for some contentious green policies will do more to reduce energy bills than an unwise plan to cap prices, as proposed by the Labour Party.
Overall, the statement doesn't change our long-held views on the UK. The government is doing some good things to help stimulate growth, but not enough is being done to tackle both the trade and budget deficits. While present growth figures may flatter, they're higher than other countries now only because they were lower in previous years – in other words our recovery, despite the spinning, has lagged places such as the US.
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