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Welcome to our rolling coverage of the Autumn Statement.
George Osborne has missed his fiscal targets and cut corporation tax.
We’ll bring you all the day’s developments live. By Tom Burgis and Ben Fenton.
15.45: We’re winding up the blog now, but you can follow events as they unfold through constantly updating stories on the front page of FT.com
15.31: A representation of the “flamethrower of uncertainty” can be found in the documentation of the OBR. It is also known as a “fan chart”. I doubt George Osborne is a fan of it, though.
15.24: Chote speaks of the “flamethrower of uncertainty”- a favourite phrase, unsettlingly enough, of the OBR, which is a chart showing forecasts in a wide range that makes the chart lines look like a firebreathing dragon.
15.18: Chote says that the variation in the possible range in the forecast of net debt figures for the UK is a large number, but is “dwarfed by the scale of uncertainties” on the issuance of debt. I think that’s the second time he has said that in his address.
15.12: The Spectator is running a rather scary chart showing the lost output of the current “seven-year slump” in the UK.
15.07: Robert Chote, director of the Office for Budget Responsibility, is live now, going through his department’s figures that underpinned the bad news Mr Osborne has just had to deliver.
15.05: Gavyn Davies has blogged for the FT with his view on the autumn statement while the FT’s Lucy Warwick-Ching has collated some very interesting instant reaction from personal finance experts.
14.49: Hannah Kuchler on the FT’s UK desk has been keeping an eye on business reaction to the autumn statement.
The CBI, the employer’s organisation, urged the government to stick to its guns on deficit reduction to retain international credibility, saying it was no surprise that austerity would last longer than expected.
John Cridland, director-general, welcomed investment in infrastructure and support for exports, but said the proof was in the delivery. He said:
“Businesses need to see the Chancellor’s words translated into building sites on the ground.”
But the British Chambers of Commerce was less positive, declaring the statement not good enough for a country meant to be in a state of “economic war”.
The government is just “tinkering around the edges”, John Longworth, the BCC’s director general said, adding: “The Budget next March must make truly radical and large-scale choices that support long-term growth and wealth creation. That means reconsidering the ‘sacred cows’ of the political class, including overseas aid and the gargantuan scale of the welfare state. Only a wholesale re-prioritisation of resources, to unlock private sector finance, investment and jobs, will be enough to win the ‘economic war’ we are facing. The danger is that our political class is sleepwalking with its eyes open.”
14.40: Lionel Barber, the FT’s editor, just passed by the live news desk so we asked him what he thought of the autumn statement.
The Chancellor is in a hole, but the good news is that he’s stopped digging. The FT supports the government’s fiscal stance, but is there more to be done on monetary policy to boost growth? That’s the question.
14.26 Who says the British don’t like doing things the French way? Might we surmise from this tweet from the BBC’s Robert Peston’s interview with Danny Alexander, Osborne’s Lib Dem No2, that the UK’s crediworthiness might be going to way of its Gallic cousins’?
Others are more chipper:
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.
Chancellor’s red boxThe FT’s Westminster blog is running live commentary on the Budget. Join us here from 12.30pm, London time. This post will update every few minutes, although it will take longer on mobile devices. Read more
The fog is lifting – and the shape of tomorrow’s Budget is becoming more clear.
My expectation is that this will not be a time for huge giveaways or takeaways given the extraordinary spending review we had last October. (Here is a reminder of the upcoming tax and benefit changes, with 16 alone in April – as illustrated by our Austerity Calendar).
Leaving aside the inevitable surprises, here is what we already know – or expect – in the showpiece event.
UPDATE on Wednesday morning:
i] £250m for housebuilding. The government will replace its old Homebuy Direct (£275m) – which effectively ended last autumn – with a new Firstbuy Direct (£250m) which will help 10,000 first-time-buyers. (The old scheme also helped 10,000 first-time buyers.). The housebuilders are delighted but others may simply see this as filling a vacuum in the shared-equity market.
ii] Rumours on corporation tax. The government is due to cut the rate from 28 per cent to 27 per cent next month (as part of a plan to lower the rate to 24 per cent by the end of Parliament) but could go further – or signal its intention to go faster.
iii] George Osborne will announce a further £600 rise in the tax threshold from April 2012 to £8.045 – on top of the £1,ooo rise taking effect next month. Bear in mind, however, that this threshold should have risen by inflation (4.4 per cent) anyway.
1] George Osborne will signal his medium-term intent to merge National Insurance and income tax. The idea is to convince the British public that they pay too much tax – preparing the way for a more low-tax future.
2] Fuel duty escalator. The chancellor is set to reduce or cancel the 5p a litre rise. But a “fuel duty stabiliser” – being considered by the Treasury – seems unlikely after being criticised by the OBR.
3] Aviation tax:
a] The government has cancelled plans to shift aviation duty from a per passenger to a per plane duty which would have stopped half-empty planes paying less tax. Officials claimed that the change would have been thwarted by the Chicago Convention from 1944.
b] Air passenger duty will be frozen, according to reports – instead of being raised in line with inflation.
c] Lear Jet levy – passengers in private jets will pay duty for the first time in a small but symbolic hit on the rich.
4] Employment tribunals. Could change rules so that staff at SMEs must work at a company for two years – up from one – to be eligible.There are also plans to charge for visits.
5] More support for apprenticeships, including 100,000 work placements.
Does the defence review add up? The head of the RAF has today given us an important insight into the maths. He has made public that David Cameron’s vision for the armed forces in 2020 is only affordable if you assume the MoD budget rises every year after 2015 by around 2 per cent above inflation.
For those of you who don’t think it sounds much, a five-year military settlement as generous as that was last granted in the early 1980s.
Is the rise a realistic basis for planning? A prudent approach? Should we really count on a military spending boom after 2015?
This review was, after all, supposed to balance the MoD books. Yet it looks like we’re back to buying kit on the never-never. Officials tell me the cumulative unfunded liability — if you take the usual planning assumption of the budget rising in line with inflation after 2015 — stands at £13bn to £15bn over the coming decade.
Coalition aides say this is completely different from the “black hole” they say they inherited from Labour. It all comes down to this statement given by the prime minister in the Commons:
“My own strong view is that this structure will require year on year real-terms growth in the defence budget in the years beyond 2015.”
On the basis of this “strong view”, Liam Fox’s team think it is realistic and reasonable to at least plan on the basis of real terms increases to cover their spending commitments. Defence chiefs also welcomed Cameron’s “strong view” of the future — but they are still pushing for a more “bankable” pledge. They want George Osborne to guarantee an annual uplift beyond 2015, a request that some Treasury officials will treat as light comedy. I don’t think such a guarantee has ever been given to a department. Read more
Vince Cable valiantly continues to argue that the £1,000 increase in the income tax threshold is part of the Lib Dem “progressive” strand of this week’s Budget – evidence that George Osborne listened closely to the Lib Dems’ determination to protect the poor when framing his austerity package.
Before he pushes the case too far, Cable would do well to have a quiet word with his departmental (Tory) colleague David Willetts.
Politicians (and the media) have short memories. Increases in the income tax threshold used to be a favourite policy of the Conservative right: people would keep more of their own money and would be less dependent on state benefits, the argument ran. And, the poor would benefit. Read more
On the basis of Osborne’s spending plans, it looks like the coalition is either:
Before you accuse me of exaggerating, take a look at the rough maths. (This is courtesy of the ever-sharp Ian Mulheirn at the Social Market Foundation.) Read more
Just take the measure to cut housing benefit by 10 per cent for anyone on the dole for more than a year. Read more
Check out these video interviews with FT experts on key areas of the Budget. Read more
“In the case of cigarettes longer than 8cm (excluding any filter) each additional 3cm (“or part thereof“) is treated as an additional cigarette for the purposes of specific duty calculation. For example a cigarette of 12 cm would be treated as three cigarettes.”
For nine Budgets out of 10, financial markets are not the most important constituency. This is the one in 10 that’s different. Facing the largest fiscal deficit of any European country, barring Ireland, it was hardly hyperbole for George Osborne and Tory spinmeisters to call this an “emergency” Budget (even if Treasury mandarins managed somehow to keep the word off the cover and out of the text of the Red Book itself).
This government’s macro-economic strategy hinges on the successful pursuit of tight fiscal and loose monetary policy: the idea is that a credible roadmap for the public finances will deliver long-term interest rates that are lower for longer, thereby underpinning a recovery. If the coalition government fails in this balancing act, a 1937-style return to recession is hardly fanciful, given the scale of public sector demand that is to be sucked out of the economy.
So far, so good. Since May 5, the day before the general election, yields on the benchmark 10 year gilt have fallen from 3.80 per cent to 3.51 per cent at breakfast time on Budget day. Shortly after George Osborne delivered a somewhat stiffer package of spending cuts and tax rises than markets expected, they dropped even further, at one point dipping below 3.40 per cent. Read more
David Cameron made a passionate speech last autumn where he claimed that it was a scandal that thousands of low-paid workers could only keep a few pence of every pound that they earned. This phenomenon, for the fiscally uninterested, is called a “marginal deduction rate”.
So what is the impact of today’s Budget on these folk? Perhaps alarmingly, people with a marginal deduction rate of over 90 per cent (they keep less than 10p in the pound) is set to nearly double – although not entirey as a result of today. Read more
George Osborne’s team are particularly proud of cooking up this chart.
The gap between the black line and the green line is basically their representation of the BROWN BOOM. Read more
Nick Clegg was apparently obsessed with the chart below, which shows the impact of the Budget measures across the income scale. The coalition have bet the ranch on “progressive austerity” and they think these statistics vindicate the claim that this is a tough but fair fiscal medicine.
The trouble is that this chart showing the spread of pain from the tax rises and benefit cuts is just a snapshot of 2012. It won’t look as fair after that. Read more
Harriet Harman made unemployment the focus of her shrill but effective riposte against the coalition, claiming that tens of thousands of people would lose their jobs as a direct result of the Budget. Her lack of a concrete figure, however, stems from the rather ambiguous picture painted by the Treasury’s Red Book.
If you compare the OBR’s new unemployment forecasts with the June pre-Budget forecasts there is a slight difference but it is not as stark as Harman would have you believe. For the current year, employment, ILO unemployment and the claimant count remain the same. Read more
George Osborne sits down at 13.28 – that’s it, the Budget has been delivered. Now Harriet Harman will respond, but thank you for comments and for joining us.
Jim Pickard, political correspondent: Osborne’s promise to return to “financial prudence”… Could this be a dig at Gordon Brown by any chance? This was in happier days his favourite expression.
Jamie Chisholm, FT Global Markets Commentator: Gilts back to where we started, down 8 basis points at 3.45 per cent. Sterling little changed.
Child element of tax credit to be increased
Matthew Vincent: The chances of exchanging contracts on your second home by 5.30pm today look a bit remote. Best phone your solicitors and give them the hurry up…
Robert Shrimsley, editor of FT.com: Is it my imagination or is George Osbrone saying “coalition government” much more now that he’s got to the nastiest parts.
The possible flaw in their argument is taking the tax rise in isolation. They’re assuming every option for spending restraint is an alternative. The brutal fact is we’re probably going to implement all the cuts they can think of, dream up a few more, and raise taxes. That’s how big the hole is. Read more
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