Today, Chancellor George Osborne, will deliver his keenly awaited Autumn Statement. The political climate in which he delivers this is embodied by the recent cold snap: frosty, bleak, but not for good.
The statement will be released with economic news dominating headlines. As the much-maligned ‘fiscal cliff’ threatens to frogmarch the remnants of the American Century, what’s left of it, over its edge and into the depths of decline, this at least makes the imminent news of our own economic conundrum deceptively less catastrophic.
Osborne will discuss the UK’s economic outlook, scrutinise the current state of public finances and explain what this information translates to in terms of government spending plans and the much misconstrued ‘austerity’ measures.
What to look out for.
- Downgraded growth figures.
The most awaited and perhaps most important news will come from the Office for Budget Responsibility’s economic forecast released later today.
In March this year, the OBR predicted 0.8% growth for the remainder of 2012, 2% next year and 3% to follow in 2014. Guilty of premature optimism, many expect these figures to be revised down to 1% in 2013 followed by a possible 3% as we approach 2015 two years from now.
2. Deficit targets missed.
With the Institute for Fiscal Studies report stating an £13 billion overshoot in borrowing, Osborne will be judged to have missed the boat by inches. A Centre for Policy Studies publication also highlights the £600 million increase to the national debt by the end of the current parliament.
Osborne determined two fiscal objectives and underpinned them with a branding-iron promise to get Britain’s financial house in order. A bold move such as this means he will be judged on meeting these objectives.
a. Eliminate the structural deficit in five years.
Two things will reduce the deficit: increased tax revenue or spending cuts. Osborne’s inertia on implementing reforms to the supply-side of the economy has compounded already tardigrade growth and permitted flat-lining to become the norm, much to the chagrin of Ed Balls whose own plan was near identical to the Chancellor’s.
b. Ensure that debt as a proportion of GDP was to start falling by the next parliament.
This is where the Chancellor will need to employ his strongest embellishment skill-set. The starkest prediction within the IFS report is that Osborne may be forced to abandon one of his objectives – to ensure that debt is falling by mid 2015. The UK economy’s weakened outlook is what shoulders the blame for this possibility.
The IFS report also states that this year’s borrowing trend, if continued at the same pace for the remainder of the year, would total £133 billion, overshooting the Chancellor’s £120 billion target.
Interestingly, two possible economic scenarios are detailed to map out the future. One being more optimistic and the other being relatively pessimistic based on the assumptions of the recent economic changes being temporary or permanent phenomena respectively.
Under both scenarios, debt is set to rise as a share of national income during both 2014-15 and 2015-16, missing the Chancellor’s objective to start bringing down the debt during these two years.
The ‘optimistic’ scenario allows the notion that any additional borrowing required over the next few years would follow the current pattern. This means the Chancellor would not require any change of course or direction.
Things could get even worse. The IFS’s ‘pessimistic’ scenario relies on the increased borrowing and weakened economic forecasts to be permanent phenomena rather than a temporary blip. If this is the case, the cuts to public spending would continue three years into the next parliament. This scenario would require the Chancellor to implement the £10 billion cut in welfare spending along with a further £11 billion of tax increases to plug the gap. A Mayan prediction such as this one would hand Ed Miliband the keys and doormat.