Five Key Points From The 'Misery' Statement - Sky News

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6:16pm UK, Tuesday November 29, 2011

Ed Conway, economics editor

George Osborne had promised he wouldn't emulate Gordon Brown and hold the equivalent of two budgets a year.

But far from being a simple set of economic forecasts, the Autumn Statement this year is chock full of measures and policies, making it a tad indigestible.

For those who prefer bite-sized chunks, here's a quick run-down of the main elements and talking points.

This is a misery statement.

The economic forecasts have been slashed – indeed, for both this year and next the UK growth projections are now a touch lower than the average City forecast – 0.9% and 0.7% respectively.

Just as significantly, the Office for Budget Responsibility has said that most of this deterioration is permanent – in other words, Britain won't necessarily bounce back with as much force as it fell.

Having said that, after the initial pain, in 2015 and 2016, the OBR thinks the UK economy will manage growth of a whopping 3%.

Chancellor George Osborne delivers the Autumn Statement

No obvious beneficiaries.

The "squeezed middle" may benefit a touch, but probably not enough to notice. They'll benefit from a slight reduction in the fuel duty increase, but given the duty (and hence prices) will still rise, this will hardly make life easier.

It's the richest and poorest who will suffer – the rich from the increased bank levy, the poor from the freeze in working tax credits.

There are a few sweeteners – more childcare provision for instance – but they are likely to be seriously outweighed by the bad news. And, overall, not a redistributive set of measures.

Borrowing rules already in peril.

Gordon Brown took almost a decade to break the two fiscal rules he set himself to keep control of his finances. Just over a year after setting himself two (alternative) rules, George Osborne is on the very brink of them.

He is supposed to be getting the cyclically-adjusted current budget (essentially, the Government's budget ignoring the temporary impact of recessions and booms) back in balance within five years.

Back in the Budget earlier this year he expected to get this finished by 2014/15, in other words by the time of the next election. Now he won't be back in balance until 2016/17 – two years later than previously though.

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So, technically at least he is meeting the rule (because it's balanced five years from now). But some economists might regard this as a minor fiddle.

The second rule is that he needs to get Britain's national debt falling by 2015/16 (a set date rather than a five year rolling target). He is, but only by a very minor fraction, from 78% to 77.7%.

And given that difference is close to a rounding error, in the realm of fiscal forecasts, there isn't much room for the Chancellor to play with.

Two more years of spending cuts and public sector pay misery.

In some senses, this is the most important policy news today. We now know that the Government will fall by 0.9% in real terms all the way through to 2017, rather than potentially ending in 2015. So the misery will still be baked in after the election if the Chancellor is to meet his rules.

And partly as a consequence the pay freeze in the public sector, which when it was announced last year was supposed to last two years, will be followed by increases of a mere 1% in the following two years.

This also allows George Osborne to make a powerful political point ahead of tomorrow's public sector strikes. He is not for turning.

This isn't the real story.

Important as the Autumn Statement is, and doleful though the economic forecasts are, they will become irrelevant overnight if there is a euro collapse.

As the Organisation for Economic Co-operation and Development set out yesterday, a break-up of the single currency could trigger a deep depression worldwide.

And Britain, which relies disproportionately on trade with the euro area, would be particularly hard-hit.

Clearly this is something the Chancellor was keen to belabour today, not least so he could claim that Britain, with its low government borrowing rates, is a safe haven.

Whether this will be the case in a few months' time will remain to be seen but certainly as long as the euro leaders fail to resolve their crisis, it gives George Osborne an excellent alibi.

READ MORE

:: Adam Boulton's analysis of the Autumn Statement

:: An at-a-glance guide to George Osborne's key announcements