George Osborne has presented his Autumn Statement. Its highlights included a large increase in the economic growth forecast, a predicted budget surplus in 2018, a hike in the state pension age and free school meals for all infants.
By John Aglionby and Emily Cadman with contributions from FT colleagues
Welcome to our live blog of Autumn Statement. Many of the measures have already been released, with the biggest unknown the size of the improvement in the growth forecast.
One thing to keep an eye on while George Osborne is speaking is the Bank of England’s interest rates decision – due at midday. No change is expected in either interest rates (0.5 per cent) or the Bank’s stock of gilt purchases (£375bn).
FT economics editor Chris Giles has compiled a checklist of Osborne’s expected announcements:
Large improvements in the growth, unemployment and inflation forecasts.
In the near-term, the upgrades will be the biggest this century.
Growth forecasts likely to be around 1.5 per cent for this year and 2.5 per cent for 2014.
The key questions are whether the Office for Budget Responsibility thinks the good times will last and whether investment and trade can take a bigger role in the recovery.
A reasonably neutral package of measures and much lower borrowing forecasts that will stem from optimism over tax receipts.
The OBR is likely to see the possibility of a surplus by the end of its forecasting horizon in 2018-19.
But with much of the upswing deemed by the independent fiscal watchdog to be catch-up growth, the cyclically adjusted measures of the public finances are likely to be little improved from the March estimates.
Further corporate tax rate cuts are likely to be signalled. For small companies, the planned increases in business rates will probably be limited to a figure close to the rate of inflation.
A limited transferable income tax allowance for some married couples that will cost almost £700m a year.
To pay for this, foreigners owning UK property are likely to become subject to capital gains tax and the chancellor has already promised another round of “tough measures” to counter tax avoidance.
Many cuts are already planned for the next three years but a “work for your benefits” scheme is expected to be introduced.
To pay for measures to improve living standards, other departments will have to spend less than their allocated budgets – again.
Energy bills will go up £50 a year less than previously expected.
Petrol duty expected to be frozen in September 2014.
Free school meals for all under sevens.
Rail fare increases might also be slowed.
Rises in the state pension age to 68 and 69 to be brought forward from 2046 and about 2055 respectively. It is expected to be increased to 70 by the end of the 2050s. These changes are expected to save some £400m.
An end to vehicle tax discs – but not the tax!
Chris has done an interactive explainer on Osborne’s challenge:
FT economics editor Chris Giles discusses with UK news editor Andrew Ward and political editor George Parker how optimistic the chancellor is likely to be:
FastFT reporter Michael Hunter has been monitoring the markets this morning:
The pound is drifting lower against the dollar at $1.6348, down 0.2 per cent on the day.
The FTSE 100 is flat at 6,510.38.
The mid-cap FTSE 250 , seen as more representative of the domestic UK economy, is up 0.5 per cent at 15,207.97.
The yield on benchmark 10-year government debt is down 2.3 basis points at 2.88 per cent
There’s been good news and bad news for the government today.
First the good news:
UK Construction PMIs continue to steam ahead, according to Chris Williamson, chief economist at Markit – the data company that compiles the survey.
Now the bad news:
Work and pensions secretary Iain Duncan Smith has announced that the government will miss its deadline for completing Universal Credit, its flagship welfare reform.
FT public policy editor Sarah Neville writes:
Under the original plan all current and new claimants for a range of six benefits and tax credits were to be moved to Universal Credit by the end of 2017.
But in a statement to parliament today the work and pensions secretary said only that “most of the existing claimants will be moved over to Universal Credit during 2016 and 2017”.
He added that “the safe and smooth delivery” of the scheme would “take precedence over meeting specific timings”.
FT columnist John McDermott has explored the issue of young people not getting their state pension until they’re 70.
Given that those who will accrue the most in their state pension are often those with additional forms of financial support, today’s announcement is further proof that the debate over whether the state pension should be a universal benefit or one based on need may not be over, more than 100 years on.
Here is what the government would like the headlines to be…
Shadow chancellor Ed Balls is going to find it tricky to score points today with the economy picking up. So Labour has decided to attack the government on what it claims is the rising cost of living. It released a new advert last night:
Its theme is copied from the Tories’ ad from the 1992 general election campaign
Andrew Hawkins, head of the polling company ComRes, has some stats on which direction MPs reckon the economy is going to go:
More from Andrew Hawkins from polling firm ComRes on MPs’ thoughts:
On that note, if Twitter is your thing, our social media colleagues will be curating the best tweets on the autumn statement, which we’ll run on our hub page – also the place to look for all of our coverage throughout the day.
FT chief political correspondent Jim Pickard has summarised the Autumn Statement:
And we are off….
Osborne has started by saying: Britain’s economic plan is working but the job is not done.
Buzzword alert: “Responsible recovery”. Already a couple of mentions
Osborne is now attacking Labour for trying to sway the government from its plan A. He says Labour has been proved “comprehensively wrong”
Growth in productivity is still too low, Osborne concedes
Business taxes are too high and exports are too low, Osborne says
First mention of “hard-working families”
Osborne turns to report from Office of Budget Responsibility
Fall in GDP from 2008-2009 was not 6.3 per cent but 7.2 per cent
There was no double dip recession, OBR says
In March OBR said growth would be 0.6 per cent. Today the estimate is 1.4 per cent
And the growth estimates have been up rated for the following four years
Next year’s forecast is 2.4 per cent, up from 1.8 per cent
And following four years’ figures are 2.2%, 2.6%, 2.7% and 2.7%
Risks from OBR: Damage from eurozone. OBR says it will shrink 0.4% this year
First policy announcement: Doubling export finance capacity available to businesses to £50m
And now onto employment forecasts – which have also been revised up to 400K new jobs
Unemployment rate forecasts: 7.0 per cent in 2015 and 5.6 per cent in 2018
OBR forecasts private sector job creation will be 3.1m by 2019
Forecasts on deficit:
Deficit 11% of GDP when govt came to power.
OBR revises underlying public sector net borrowing down to 6.8% from 7.5%, 5.6% next year and in 2018 1.2%.
OBR expects Britain to run a small surplus by 2018 – confirming our story this morning Osborne holds out prospect of surplus
A reminder of why the 7 per cent unemployment threshold is important – it is the level at which the Bank of England will consider raising interest rates. See Mark Carney hits back at critics of forward guidance on rates for background
Borrowing forecast is down by £73bn in next few years
£111bn this year
£96bn next year
£79bn in 2015/16
£51bn and £23bn in following two years
Structural deficit forecast has not improved
Structural deficit is 4.4 per cent today. Will continue to fall but at the same rate as previously predicted
Gains could easily be lost, Osborne warns.
So statement is fiscally neutral
Osborne will cap overall welfare spending.
There is to be an updated charter for budget responsibility presented to parliament next year. And there is agreement in the coalition that debt continue to fall as percentage of GDP – using surpluses in good times
From next year there will be a new cap but basic state pensions will not be included
Tax credits and income support will be included
If cap is breached, there will have to be a vote in parliament, Osborne says
Accountancy firm EY tweets:
More austerity for Whitehall: Reduction of £1bn in the contingency reserve fund and £2bn of cuts to departmental budgets. Health and education are exempt so more pressure on the other departments
£120m of libor fines to be made available to military charities
Osborne moves on to state pensions.
Pension to rise by £2.95 a week from next April
And we’re onto the increases in pension age
Pension age has to keep track with life expectancy:
Adults should spend a third of their adult lives in retirement
So state pension age will rise to 68 in mid-2030s and 69 in the mid-2040s. Exact dates to be announced later
Osborne moves on to taxes
30% of all income tax paid by 1% of taxpayers, Osborne says
Osborne sets out tax avoidance and evasion measures. It should raise over £9bn in the next five years
It will be interesting to see how that is calculated when we get the numbers….
One personal tax change.
From 2015 capital gains tax on home purchases/sales to be introduced to foreigners.
Turning to infrastructure investment – Osborne repeats backing for High Speed Two, shale gas extraction and nuclear power
And the bank levy will increase to 0.156%. It will raise £2.7bn next year, £2.9bn a year from 2015-16
New science centre to be built at Edinburgh University
Osborne moves on to the “weakness of housing supply”
Commits to investment in quantum technology and more tax breaks for shale gas – rate halved on early profits. Details from the FT this morning: Quantum technology to get £270m boost
£1bn of loans to unblock housing projects across the country
Working people in social housing to be given priority to move if it helps them get a job
Aldermore and Virgin – two of the so called “challenger banks” – expected to join Help to Buy scheme this month
Backing for Michael Gove’s free schools programme from the chancellor – gets a big cheer in the house
Confirmation of expansion of free school meals for the first three years in school as announced by Nick Clegg
School leavers must start training from Day 1 or risk losing their benefits
Apprenticeships to be reformed – employers to be funded directly through HMRC. An additional 20,000 over next few years
From our political editor
This year has seen the highest proportion of people from disadvantaged backgrounds applying to university ever, Osborne claims
30,000 more student places next year, and the following year the cap on student numbers will be abolished
Osborne says government study published today shows that more than half of money lost from cutting corporation tax will be recovered from higher growth
The higher education sector is going to want much more detail about how the cap on student places will be funded.
Rate relief scheme for small businesses will be extended for another year
Cap increase on business rates at 2% from next year
This from our Global Markets Commentator Jamie Chisholm on the reaction in the markets:
Government bond prices are generally firmer, and yields lower on Thursday. But gilts are mildly outperforming, with 10-year yields down 3 basis points to 2.87 per cent, after UK chancellor George Osborne said the government would borrow less than forecast in March. Sterling is is down 0.3 per cent versus the dollar to $1.6337. The FTSE 100 is becalmed, in keeping with a cautious global mood.
From April 2013 a new transferable tax allowance for basic rate married couples: £1,000 can be transferred between spouses. 4m families to benefit, Osborne says.
As trailed, green levies on energy bills to be rolled back – £50 to be cut from bill rise.
Freeze on fuel duty is to continue with next year’s rise cancelled
Labour party responds to married couples’ tax break:
Average rail fares to be kept flat in real terms
Whilst the chancellor is speaking, the Bank of England has announced there will be no change in interest rates
Jobs tax to be abolished for people aged under 21
From our deputy UK news editor:
Keeping rail fares flat for the country echoes Boris Johnson’s decision for London fares earlier this week. But remember they use RPI inflation to calculate them, so we are still talking a 3.1% rise.
Mayor curbs London transport fares rise
Osborne finishes by saying: “Britain is moving again, let’s keep going.”
Shadow chancellor Ed Balls starts his response: For all his boasts and utterly breathtaking complacency, chancellor is in denial that for most people in this country living standards are falling year after year.
Balls says average working people (whoever they are) are £1,600 worse off than when government came into power.
Balls says most working people are not feeling the recovery.
Net lending to business is down £100bn compared to 2010, Balls says.
The process of checking the detail now starts as the Treasury releases all the paperwork.
Balls reminds Osborne of his promise in 2010 to balance the books by 2015.
Reaction from Wayne Weaver, UK banking tax leader at Deloitte:
“The Chancellor has announced the seventh rise in the bank levy rate to 0.156% – an increase of 10%.
“A consultation process over the summer has also led to today’s announcement of a number of changes to the operation of the bank levy.
“The levy will raise £2.7bn in 2014/2015 with the cost continuing to be borne mostly by the large UK banks. However, as banks continue to deleverage, the rate of bank levy will need to continue to rise to meet the target yield. At some point this could affect pricing and the availability of credit.”
Reaction is now starting to come in on the tax avoidance announcement. Here from Neal Todd, a partner in the tax team at international law firm Berwin Leighton Paisner
“Ensuring individuals and multi-national corporations pay the right amount of tax is a laudable objective but the latest announcements beg the question of why additional reform is needed. We already have the General Anti-Abuse Rule in place which was intended precisely to act as a catch-all framework to ensure the spirit as well as the letter of UK tax legislation is obeyed.
“Imposing the most wide-ranging anti-avoidance package in this Parliament on top of the GAAR and so soon after the GAAR was implemented will lead to unnecessary uncertainty about the interplay between various sets of anti-avoidance provisions. It can only further lengthen the UK tax code.”
FT’s chief political correspondent Jim Pickard has noticed something in the capital gains tax announcement on property purchases/sales by foreigners:
“Overseas owners of UK property will have to pay cgt for first time – but only on “future gains”; that will be a relief to many investors.”
The first take from the FT’s economic team is now live on the site – Sarah O’Connor and Chris Giles note it included the biggest upgrade to official growth forecasts since the millennium: Osborne says UK economic plan working
FT political correspondent Kiran Stacey has had reason to chuckle at last:
If you want to read the Autumn Statement in full, here it is:
FT political correspondent Kiran Stacey has summed up the Autumn Statement:
“With growth returning and budget surpluses now in sight, this was George Osborne’s victory statement. Ed Balls is currently trying to remind people that the deficit will not be eliminated until four years after the chancellor’s original target, but it’s no good – the Tories have their tails up and Labour are taking a beating. Interestingly, even though growth is coming back, the cuts have not ended – there will be £1bn more taken off almost every department over the next two years – and that’s because growth does not get rid of the entire deficit.”
Here’s an OBR chart on growth forecasts:
Reaction from Richard Britton, founder of CloudSense, a cloud computing consultancy:
“From a business perspective there aren’t too many surprises in the Autumn statement and overall it still seems a little half-hearted. There are no measures within it in my view that will really add to the economy and accelerate further business growth.
“The announcement of extra funding for the British Investment Bank by Nick Clegg earlier this week is a welcome move, and will help to open up capital flows to business but it is still a drop in the ocean at only £250m.
“The capping of business rates is positive as it will help to keep costs down for businesses, allowing them to invest in other areas of their operation. However, the grand vision for the UK economy is still lacking and while conditions are improving, there needs to be more in next year’s budget to help maintain existing growth and to rebalance the economy around dynamic fields with major growth potential such as the technology sector.
“Other countries are doing more to promote these industries, while the UK is lagging behind. If we want to compete in the global economy we need to realise that for British businesses the measures announced are more of the same and these will not help us compete on the world stage.”
So here is a summary of the announcements of where money is going to be saved or raised:
• £1bn reduction in the continuity fund
• £2bn off department budgets over the next two years
• £9bn raised from new tax avoidance measures
• From April 2015 foreigners who sell residential property in the UK will have to pay capital gains tax.
Environmental group Friends of the Earth is not impressed by the Autumn Statement. Executive director Andy Atkins said:
“Yet again the long-term health of our economy has been completely undermined by the Chancellor’s short-sighted determination to keep the nation hooked on dirty and increasing costly fossil fuels.
“Handing tax-breaks to climate-wrecking fracking firms simply highlights the fact that George Osborne hasn’t done his homework: they won’t lower bills, MPs say they are unjustified – and they could be illegal.
“The quickest and most cost-effective way to tackle rising energy bills, and end the scandal of thousands of people dying in heat-leaking homes, is to invest in a comprehensive insulation programme. But the Government has caved in to Big Six pressure and given energy efficiency the cold shoulder.
“Building a strong economy and protecting the environment are two sides of the same coin, but yet again the Government has left them both short-changed.”
John Longworth, Director General of the British Chambers of Commerce appears to be half-pleased by the Autumn Statement. He said:
“Business will be pleased that the Chancellor has finally acted on business rates bills after years of relentless increases that sucked the life out of businesses in all parts of the UK. The measures announced to curb business rate increases are positive, but not strong enough to boost companies’ cash flow and investment. The Chancellor should have been bolder, freezing business rates entirely until this pernicious tax can be properly reformed.
“Upgraded growth forecasts, lower borrowing forecasts, and increased business confidence are all indications that the UK economy is moving in the right direction. However, restoring stability to the public finances remains crucial to businesses.
“The Chancellor must continue to restrain current spending, and prioritise resources on investment in infrastructure and on creating the most competitive environment for wealth creation and enterprise.”
And Charles Beer, managing director at Alvarez & Marsal Tax and UK, said the changes to capital gains tax on property transactions by foreigners is a “a major change in UK tax policy”. But he is unsure about how effective it will be:
“Despite being designed to cool an overheated central London market, it will affect just as many people in other areas, notably expatriates who have kept property in the UK either for letting or for their own use.
“In fact it seems unlikely that the announcement will have much effect on the London market which is largely driven by factors other than tax. Given that the new tax will only fall on gains arising above values at April 2015, it will be a long time before there is any noticeable revenue effect.”
And here are the main spending announcements:
• Stamp duty abolished for shares traded on exchange traded funds
• Free school meals for the first three years of school
• New transferable tax allowance for some married couples
• Employers will not have to pay national insurance for workers under 21
• Abolition of cap on the number of students who can go to university from 2015
• Freeze in fuel duty
• Extension of small business rate relief scheme
• Discount on business rates for small local retailers
• Business rate annual increase capped at 2%
• £1bn in loans to unblock housing projects across the country
More data from the OBR:
The government has put out an overview on the tax announcements in the Autumn Statement
And to recap on those economic numbers:
• Prediction of a budget surplus by 2018
• Big upgrade in the growth forecast for next year from 0.6 per cent to 1.4 per cent
• Unemployment forecast is also improved – the OBR now expects unemployment to fall below 7% in 2015 (previously it was predicted 2017)
• Government borrowing will fall to £111bn, down from the £120bn forecast in March
• Little change to the structural deficit forecast
And with that, we’re now wrapping up this live blog, thanks for your comments. There will be detailed coverage of all of the key measures in the statement on our Autumn Statement hub page through out the afternoon.
They’ll also be a live blog starting shortly on Money Supply on the monthly press conference from ECB president Mario Draghi – the ECB has just announced it will be keeping interest rates on hold.