All will become clearer on Wednesday, but FT Westminster has collated some of our recent coverage of recent days for a handy guide to what to expect from the chancellor.
1] FISCAL OVERVIEW Osborne’s plan to cut the deficit is off track – meaning that Britain’s debt mountain is still rising faster than expected. Labour will make this the centrepiece of its attack on the government – as Ed Balls told us last week in an interview: “The Autumn Statement will be the point where the misjudgements of the last two years will be on full display.”
There are growing expectations that the coalition will miss its target of cutting debt as a share of national income by 2015/16 and that spending cuts could extend until 2018. The five-year target for eliminating the structural deficit – originally set for the end of this parliament in 2015 – is likely to be rolled over for a further year, with austerity measures extending deep into the next parliament.
2] WELFARE We are expecting the first signs of a new crackdown on welfare spending, which Mr Osborne wants to cut by £10bn by 2016/17. The chancellor is expected to announce that he is breaking the traditional link between benefits and inflation next April.
Nick Clegg, Liberal Democrat leader, has rejected an outright freeze in working age benefits but is thought to have agreed that they should rise by less than the planned 2.2 per cent; coalition officials have mooted a compromise of 1 per cent. Mr Clegg is also said to have blocked a proposal to stop under-25s claiming housing benefit.
The freeze should save nearly £1bn in the first year if applied across all major benefits and tax credits; based on the inflation figure from September, which was just 2.2 per cent. (The gains would have been much bigger if this was done last year, given that inflation in September 2011 was running at more than 5 per cent).
3] TAX ON THE WEALTHY The quid pro quo for the welfare cuts is a tax raid on the wealthy, insisted upon by the Lib Dems. Mr Clegg has been denied his aim of a mansion tax or the alternative of new council tax bands for the most expensive properties. Instead Mr Osborne and Mr Clegg have decided to extract more money from the rich through a more modest raid on their pensions, by cutting the £50,000 annual tax-free allowance for pensions contributions – as we revealed on November 19.
Pensions experts say a cut to £40,000 or even £30,000 would hit higher paid public sector workers, including hospital consultants or headteachers, but the chancellor believes the move is justified. Those close to the autumn statement preparations say that pension tax relief is heavily tilted towards the richest 1 per cent and Mr Osborne said he would be targeting the wealthy even if he was not in coalition with the Lib Dems.
4] INFRASTRUCTURE AND PFI The government will announce that several major projects have successfully applied for its “guarantee” scheme, first announced in the summer. Mr Osborne will also say that billions of pounds have been saved through the rewriting of hundreds of existing PFI contracts.
Meanwhile the PFI itself (private finance initiative) will be revamped, although it will retain many of the core features of the old, discredited system. Mr Osborne may still talk about the need to get pension funds to invest in infrastructure, although this is not going brilliantly: so far only £700m has been committed against a 10-year £20bn target, as I revealed a few weeks ago.
5] HESELTINE REVIEW When Lord Heseltine presented his official review of economic growth in the regions there was one truly radical recommendation: the devolution of up to £58bn of Whitehall spending to local enterprise partnerships, the often ad hoc groupings of councillors and business people in the regions.
The peer himself has told allies that he doesn’t know whether Osborne agrees with that central recommendation. But we revealed in Saturday’s FT that the chancellor is proceeding with such a “pot” and is telling ministries to argue why they should keep the funding and not devolve it. The implications are major: BIS could lose £14bn of cash for adult skills and the DFE could lose its £3bn budget for 16 to 18-year-old apprentices.
Mr Osborne may also indicate his willingness to implement many of the other, more minor, elements of the Heseltine plan. Some of these – such as ensuring business representation on school boards – would not be hard to introduce.
6] ENERGY Last week’s energy bill has provided a subsidy framework for low-carbon energy such as nuclear and wind farms. Mr Osborne will now redress the balance by announcing the go-ahead for a new generation of gas-fired power stations in the so-called “gas strategy”. This could involve a huge expansion of gas with 20 or 30 new power stations to be built by 2030 – quadruple the estimate of Decc only a year ago. But this doesn’t mean the coalition is abandoning renewables, as I’ve explained on this blog.
He will also reignite the row over shale gas by authorising fracking – which was suspended last year after two small earthquakes – under the remit of a new regulatory body. A green tax on big companies, called the “carbon reduction commitment”, will be modified but not scrapped after a review launched at the spring Budget, I reported this morning.
7] TRANSPORT By now the Treasury was meant to decide how to resolve the perplexing issue of how to shoehorn billions of money into new roads and motorways. But discussions around a new excise duty for motorways and trunk roads – which could provide an income stream for a new, privatised agency – do not seem to have completed. Instead expect hundreds of millions of pounds for a spattering of new (or un-cancelled) road schemes around the country. Meanwhile plans for the High-Speed 2 rail link are this week facing a major judicial review – but this may not stop Mr Osborne mentioning that the “Y” element of the route (from Birmingham to Manchester and Leeds) will be published quite soon. It’s not yet clear whether it will pass through his constituency of Tatton.
8] LAND AND PROPERTY We revealed a week ago that the Treasury is to strip control over ministries’ land banks and hand them to the Homes and Communities Agency – amid frustration at the slow pace of land sales. The idea of these sales is not only to help housebuilding but also raise money for the Exchequer.
Last month I revealed that the Treasury would relax the regime governing Reits (real estate investment trusts) to allow these large listed commercial property companies to invest in each other’s shares. There was a related consultation on changing the tax rules to enable more social housing Reits – but the signals are that this may not go ahead.
Back in August I revealed that the Treasury was set to introduce a new scheme underwriting housebuilders and housing associations. We may hear more details on how this will work and how an aggregator agency could act as a mediator between the industry and government.
9] TAX DODGING CLAMPDOWN Osborne will seek to deal with the outcry over tax avoidance by multinational companies with an extra £77m a year for HMRC to focus on enforcement on both avoidance and evasion. He wants to speed up work on transfer pricing agreements, whereby companies can shift profits out of the UK to lower tax jurisdictions. He has also claimed that a recent deal with Switzerland could raise more than £5bn of previously uncollected taxes from swiss bank accounts over the next six years.
10] FUEL DUTY It seems a fair bet that the chancellor will unveil yet another freeze in excise duty, to prevent petrol prices going up even faster. This was signalled loudly by the government after a rebellion by Tory MPs a few weeks ago, led by Robert Halfon. The FT reported that the intended 3p a litre rise is likely to be deferred.