Autumn statement: Live blog

Welcome to the Westminster blog’s live coverage of chancellor George Osborne’s autumn statement. One of the most eagerly anticipated statements since the coalition government took power was expected to offer a gloomy prognosis on the economy. Michael Hunter and Gordon Smith from the FT main newsdesk covered the statement live from 12.30 with additional comment from FT colleagues.

14.10 Thanks for joining us. You can find much more, including the full text of the chancellor’s speech and comprehensive analysis, including video interviews, at www.ft.com/autumn2011.

14.06 We’ll close the live blog shortly, but here’s a summary of the key points.

  • Growth rates cut for this year to 0.9 per cent from 1.7 per cent in March. In 2012 growth is now expected to drop to 0.7 per cent from the earlier forecast of 2.5 per cent. Growth will not return to trend of about 3 per cent until 2015.
  • Borrowing to rise by an extra £111bn over the next 5 years, according to forecasts from the Office of Budget Responsibility
  • The debt-to-GDP ratio will peak at 78 per cent in 2014 to 2015 – much higher than forecast – and will be falling by the end of the parliament.
  • Government will not meet its target of eliminating the structural deficit – the share of the budget deficit that would remain after the economy recovers – until 2015-16.
  • Unemployment is set to rise to 8.7 per cent next year from a current rate of 8.1 per cent, before dropping back to 6.7 per cent in 2015-16.
  • To boost economic growth, the government will spend an additional £5bn on 500 new national infrastructure projects.
  • Bank levy increased to keep revenue from lenders at £2.5bn.
  • Public sector pay increases to be limited to 1 per cent after the current freeze ends in 2013.
  • The state pension age will be increased from 66 to 67 in 2026.
  • Tax relief on small business investment raised to 50 per cent and business tax rate holiday for small businesses extended until April 2013
  • Extra £1.2bn spending promised for schools.
  • Nursery school places doubled to 260,000 for the poorest families.
  • Rises of transport fares limited to 3 per cent above inflation.
  • Planned 3p a litre fuel duty increase for January scrapped and August’s increase to be limited to 3p.
  • Credit easing programme to underwrite up to £40bn in low-interest loans to small and medium-sized firms.
  • Rise in regulated rail fares to be capped at 6.2% – 1% above inflation – in January, down from 8.2%.

13.54 Divyang Shah, strategist at IFR Markets, comments:

Plan-A helps to keep Gilts as safe haven
There is no Plan-B. This is all that one needs to take away from what has been a widely trailed measures from the Chancellor helping to keep gilts as a safe haven. Those looking at the details will see that despite the desire to put fiscal targets back on track for a later date there remains a modest dose of optimism with 1) OBR looking for growth of 0.7% next year much higher than EC and OECD forecasts for growth and 2) borrowing is expected to be 112bn higher but still relying on gilts to stay as a safe haven as interest payments are reduced by 22bn.

13.50 Political editor George Parker adds:

The big savings are in public sector pay restraint and on tax credits to pay for youth unemployment, nursery education etc. Robbing Peter to pay Paul?

13.48 Now for some reaction from the unions.

Unite General Secretary, Len McCluskey says: ‘George Osborne is like a pilot, who has put his plane into a tailspin, and is now wrestling desperately with the controls as the aircraft rapidly loses height.

‘What is worrying is that the majority of cash is earmarked to come from institutional pension funds and the Chinese government sometime in the distant future and yet to be agreed.

‘The chancellor is determined not just to raid public sector workers’ pensions, but their wages as well, with the news that public sector pay will be capped at one per cent for two years, once the current pay freeze ends.

‘His much-vaunted capital projects will be paid for from the wages of working people who are being squeezed and squeezed again, as they driven into desperate financial straits. The City has got off again scot-free.’

13.46 George Osborne responds to Ed Balls statement with taunts about interest rates:

“Presumably the fact that Italian interest rates are above 7 per cent is an economic success. The fact that Greece’s borrowing rates are 30 per cent is an economic miracle” after the Labour shadow chancellor said low interest rates in the UK were a sign of economic failure.

We’re beginning to digest the chancellor’s numbers now and tot up the new borrowing forecasts. According to a report from the Press Association the government is now expected to borrow £111bn more over the next five years than previously forecast because of those weaker growth forecasts.

13.44 David Morrison, strategist at GFT, the consultancy:

It really was a struggle to listen through to the end. There was little in there that hadn’t already been telegraphed, and the only surprise was that there wasn’t one.

This statement was really about saying: “We won’t change tack, even if we’re missing our short-term targets.” In that respect, the Chancellor did what he needed to do, although he really didn’t come up with anything to stimulate the private sector. Of course, he has also managed to cover himself if/when the European debt crisis escalates further.

13.38 More reaction from business. Julie Meyer, founder and chief executive of Ariadne Capital, a technology investment and advisory company says:

By introducing the new Seed Enterprise Investment Scheme, offering 50 per cent tax relief on investments of up to £100k for start ups, and a year-long capital gains tax on that investment, the government has made a positive step. They are letting angel investors keep more of their money in order to build the economy.

13.35 Ed Balls is still on the attack. KS says:

Ed Balls is urging the chancellor to cut taxes – this is a smart way to outflank Osborne and win support from the right wing of the Tory party.

Balls says the OBR is predicting higher unemployment in each of the next two years, and lower employment next year. It doesn’t look like the private sector is going to rush in and fill the gap left by the state any time soon.

 

13.26 Back to the markets. Neil Dennis from our markets team adds:

On the whole, markets are as impressed as they can be with this statement, given most of it was pre-announced to the press days ago. Housebuilders continue to rise, construction firms are getting a boost from the proposed rise in infrastructure spending. This is mostly benefiting mid-cap companies on the FTSE 250, hence this index is up 0.9 per cent, in contrast to the blue chip FTSE 100, which is down 0.2 per cent, reacting more to easing markets in Europe. Gilt yields are exactly where they were when the Chancellor first stood up: 10-year gilt yield is down 7 basis points to 2.22 per cent. Sterling likewise is unmoved, up 0.7 per cent to $1.5471 where it was an hour ago.

13.25 Kiran is watching Ed Balls’ response:

Unsurprisingly, Balls starts with the OBR and has has some good attack lines ready: “His economic and fiscal strategy is in tatters.”

He also turns the Tory line that “You can’t borrow your way out of a debt crisis” on its head, saying that low growth is forcing us to borrow more anyway. The question is, would Labour’s measures have meant higher growth and lower borrowing?

We are starting to get some costings. Tony Wilson from the think tank Inclusion reckons the child tax credit squeeze will save £1bn. And £250m from extending the freeze on working tax credits to every element.

13.23 Early reaction to the chancellor’s speech from Adam Chester at Lloyds Corporate Markets. “We take slight issue with some of the forecasts he’s published for GDP particularly in the back years, very rosy projections in 2015-16. A little bit optimistic on the growth forecasts but overall not a bad budget so far.”

Ross Walker at RBS says the borrowing forecasts are higher than he expected. “The thing that stands out for us is the cumulative borrowing increase. That’s more than we had looked for. It’s obviously partly the extent of the near-term growth rate cut which he’s announced and also the reductions in terms of the trend rate and the assumptions on the smaller output gap.”

13.20 KS says:

Osborne finished with what might well be the theme of the next election: “Leadership for tough times, that’s what we offer.” There were no last minute unexpected giveaways here – they were all leaked, not least because he was concerned these measures would be overshadowed by the OBR forecasts.

13.19 A few more points on personal finance from Matthew Vincent.

Tax relief on Enterprise Investment Scheme raised to 50 per cent! No-brainer investment for high earners.

Enterprise Investment Schemes now give more tax relief than pensions.

13.18 Chancellor sits down

13.18 Planned fuel duty increase in January cancelled. The planned increase in August is to be limited to 3p per litre.

13.17 Free schools specialising in maths will be set up to boost the number of students entering into science and engineering courses at university.

Chancellor confirms nursery provision to be doubled to 260,000 places or 40 per cent of the country’s 2-year olds.

Train and bus fare increases to be reduced from RPi plus 3 per cent to RPI plus 1 per cent, with the difference funded by the government.

13.14 KS adds:

The first Labour response is in – they say the higher than expected borrowing forecasts show there is “pain but no gain”.

The capital gains tax threshold will be frozen next year – so far the statement has been full of apparently minor policies like this which actually save a lot of money and could upset a lot of people.

These are the unexpected announcements, as brought to us by George Parker, the FT’s political editor:

Extended pay restraint in public sector.

Regional variations in public sector pay under review (this is very controversial)
£1bn extra for regional growth fund.

Review of “ridiculous” habitat rules.

A big squeeze on tax credits – including some child-related bits (not entirely new, we said this would happen last week – although we have more details today).

13.13 Unemployment to rise to 8.7 per cent next year before dropping back to 6.7 per cent in 2015-16, according to the OBR.

Schools to receive an additional £1.2bn in funds for spending on infrastructure.

13.10 Employment market laws to be reformed, including protection for employees and health and safety regulations.

Income tax relief of 50 per cent for investments in small companies of up to £100,000.

Business rates holiday for small companies extended to April 2013.

13.08 An update from Neil Dennis in our markets team:

New homes for families that need them – 100,000 young families to be helped with mortgage indemnities and money from sale of council houses put into new building projects: The housebuilders on the FTSE 250 are loving this – Taylor Wimpey up 4.1 per cent, Redrow up 4.7 per cent and Barratt Development up 3.5 per cent.

Matthew Vincent, Personal Finance Editor, says:

Pension and benefits uprating by 5.2% is simply the function of September inflation – no great generosity. Chancellor also assumes mortgage lenders won’t have to raise rates. He clearly isn’t trying to remortgage now.

13.07 Help for energy intensive industries will include climate change levy relief to help protect UK jobs.

Reform to the carbon trading scheme worth £250m.

13.06 Measures will be introduced to make it easier for UK based companies to bid for government contracts.

13.06 Support increased to SMEs to invest and expand overseas.

New R&D tax credit to be introduced in 2013

13.04 Regional growth fund will get an extra £1bn from the government which also attracts private sector funding.

Fresh funding of £500m for new scientific projects.

13.02 No third runway for Heathrow – this is the only option ruled out for airport expansion.

13.01 British pension funds to add £20bn in private investment capital in infrastructure projects.

Infrastructure projects include electrification of the trans-pennine train line and Liverpool’s Atlantic gateway scheme

12.59 National infrastructure plan, to be published today identifies over 500 infrastructure projects, the chancellor says.

12.58 KS:

Osborne promises not to agree to an EU financial tax – “it is a tax on people’s pensions”. This is far removed from the official govt position, which is that we will back one if everyone does.

12.57 Now for the banks.

Government response to the Vickers report on the banking sector to be published next month. The government will not agree to a new EU transaction tax on banks.

The bank levy is increased to 0.08 per cent from 0.075 per cent.

12.56 KS:

First we had credit easing, now we’ve got the housing proposals – the question is, is there anything waiting here that hasn’t already been comprehensively leaked?

12.55 Mortgage indemnities to be used to help 100,000 young families struggling to raise a deposit to buy newly-built homes.

Government plans to reinvigorate right to buy scheme under previous Conservative government.

Familied in social housing will be able to buy their homes at a discount of up to 50%, with receipts re-invested in new housing projects.

12.54 Businesses with turnover of less than £50m will have access to scheme.

National Loan Guarantee scheme designed to reduce interest rates charged to small business by 1%.

12.53 The chancelllor turns to pensions. Starting in 2026 the state pension age will rise from 66 to 67.

Chancellor plans to trim current expenditure by 0.9 per cent a year, excluding increases to infracture spending set out today.

Higher basic state pension age will save £14bn.

Enterprise Financce Guarantee Scheme expanded to businesses with turnover of up to £44m.

12.50 Kiran says:

As expected, tax credits will be hit – there will be no above-inflation rise in the child element of working tax credit and the elements of working tax credits that have not already been frozen will now be frozen.

As I wrote on this blog yesterday, this directly hits the “squeezed middle”. Could this backfire badly on Osborne? It was certainly not his preferred option – he would rather have frozen benefits.

12.49 Working age benefits increased in line with consumer price inflation of 5.2%.

12.48 Kiran says:

We get details of the first squeeze – public sector pay will be hit. After the current public sector freeze ends, pay rises will be limited to 1%. The day before public sector unions go on strike, Osborne picks another fight with them.

The public sector pay squeeze will raise £1bn by 2014/15, Osborne says.

Contrary to what Andrew Mitchell told us last week, the international aid budget WILL be tapped to help pay for these measures – a huge defeat for the development secretary.

Chancellor calls on union to call off strike planned for Wednesday and get back to negotiating with employers.

Overseas aid – international development budget to increase, but will not overshoot existing targets.

12.44 Today’s measures will require no extra borrowing and no extra spending.
Significant savings in fiscal position will be used for spending on infrastructure and re-training young people.

There will be further restraint on public sector pay – public sector pay awards set at an average of 1 per cent for the years after the pay freeze ends.

12.43 Debt- to-GDP ratio will peak at 78% in 2014/15, then fall back by the end of the parliament.

Debt will fall to £127bn this year, £10bn less than earlier forecast. Next year it will drop to £120bn, then £100bn in 2013-14, £79bn, £53bn before ending 2016-17 at £24bn.

The suggestion, made by “some people in this house” that if you spend more you borrow less is “something for nothing economics”, the chancellor says.

12.41 Kiran Stacey (KS) says:

The structural current deficit will only become a surplus in five years’s time – two years after Osborne originally said, and one year after this parliament ends.
This is the killer detail that Labour will be well prepared to swoop on.

12.40 The OBR increases its prediction of the proportion of the debt because the downturn was deeper than previously thought and the boom was bigger than previously thought.

Without the government’s austerity measures, the Treasury estimates government borrowing would run at £100bn more by 2014/15, enough to place the UK at the centre of the “debt storm”.

12.38 Kiran Stacey from the FT lobby team says:

The OBR growth forecasts were as Chris Giles reported today – 0.9% this year, 0.7% next year. Osborne praises the independence of the OBR – to laughter from the front bench – Chote et al have managed to overshadow today’s statement.

12.37 The OBR has reduced its assumptions about spare capacity in the economy and the trend rate of growth, on evidence that the rate of unsustainable growth during the last boom was higher than previously thought.

12.36 The OBR cuts growth forecast for the next five years. It now expects 2011 growth to total 0.9 per cent, down from 1.7 per cent. Next year growth will fall to 0.7 per cent before rising to 2.1 per cent in 2013, 2.7 per cent in 2014, 3 per cent in 2015 and 3 per cent in 2016

If we accept the OBR’s numbers, we must also pay heed to their analysis

Extensive contingency planning is underway to deal with all possible outcomes of the eurozone debt crisis.

But growth forecasts are downwardly revised – OBR’s central forecasts assumes the eurozone will find a way through the sovereign debt crisis.

The central forecast from the OBR does not predict a recession in the UK.

Chancellor – we will do whatever it takes to protect Britain from the debt storm.

12: 31 The chancellor stands up to deliver the autumn statement

12.31 Yield on 10-year gilts down 8 basis points at 2.22 per cent and sterling is up 1 per cent at $1.5658 and up o.3 per cent against the euro at 85.65p.

12.30 Sir Mervyn King, Bank of England governor, added to the gloom when he told MPs: “We are still deep in a financial crisis with weak output and we are a long way from getting back to normal.”

So expectations for today’s statement are pretty low and the chancellor has very little room for manoeuvre.

With the Commons filling up the FTSE 100 is now up just 9 points at 5,321.78.

12.20 Sterling is up 0.2 per cent to 85.70p per euro, and rose 0.3 per cent to $1.5563 and the yield on the 10-year UK gilt was down 3 basis points at 2.24 per cent. Two-year yields were little changed at 0.42 per cent after earlier dropping to a record 0.381 per cent.

12.15 Let’s kick off with a look at the markets. With half an hour to go before the chancellor stands up, the FTSE 100 is up 0.5 per cent at 5,337.61 after finishing on Monday with its biggest rise in a month on hopes that politicians are finally beginning to get to grips with eurozone debt crisis.

The banks, which made hefty gains on Monday, have been dragged lower by a report from Moody’s, the credit rating agency, which placed the junior bonds of 87 European banks (not from the UK) on review for downgrade. Investors will be hoping the chancellor will give them more details on the new National Loan Guarantee Scheme, which will see government-backed money directed towards small business.