Lower growth, bigger deficits, targets missed — that’ll be the backdrop to George Osborne’s Autumn Statement tomorrow. So what medicine will he prescribe to make it all better? As usual, many of the policies have been leaked already:
More capital spending, paid for by extra cuts elsewhere
This was announced by Number 10 this morning: £5 billion extra spending on schools, science and transport over the next three years. That’ll include an extra £1 billion for Michael Gove’s academies and free schools programmes, to provide 50,000 new school places. It’ll all be paid for by extra cuts in departments’ resource budgets: 1 per cent more than planned next year and 2 per cent the year after (though Health, Education and International Development will be protected).
Tax relief on pension contributions
This is a move that Danny Alexander has been calling for all year — tax relief on pension contributions disproportionately benefit the wealthy, so reducing them is an austerity measure that doesn’t hurt the poor. In its first year, the coalition limited the amount you can pay into your pension pot tax-free from £255,000 a year to £50,000 a year. In February, Alexander called for higher-rate tax relief to be axed, saving £7 billion a year. It seems likely that if Osborne does restrict tax relief further it’ll be through a further reduction in the tax-free limit: cutting it to £40,000 would save the government £600 million a year.
In his March Budget, Osborne said we’d need to reduce the annual welfare bill by £10 billion by 2016. But in September, Nick Clegg vetoed a freeze in working-age benefits. Instead, a compromise might be to have them rise by 1 per cent, rather than the planned 2.2 per cent (in line with September’s CPI inflation rate). The FT’s Westminster Blog says this should save £1 billion in the first year.
Another fuel duty freeze
Osborne has already postponed the 3.02p per litre fuel duty rise twice: he pushed it back from January to August and then again from August to January 2013. But last month he faced the prospect of a backbench rebellion on a Labour vote to delay it again. The rebellion didn’t come about, probably because Osborne promised the potential rebels that they’d get what they wanted in the Autumn Statement. So we can expect yet another fuel duty freeze tomorrow. (Read our Coffee House briefing on this here.)
Goodbye PFI, hello PF2
Osborne will replace the Private Finance Initiative with a new scheme: Private Finance 2. The aim is to make projects faster, cheaper and more transparent, and to ensure that the government gets a share of the profits. The Treasury has also renegotiated existing PFI contracts, saving £2.5 billion.
Investing in shale gas
As Isabel reported earlier, Osborne will announce a new ‘gas strategy’, including up to 30 new gas-fired power stations, an Office for Unconventional Gas to make shale exploration easier, and a consultation on tax breaks to incentivise it.
Clamping down on tax dodgers
Yesterday, Osborne and Alexander announced an extra £77 million for HMRC to spend on combating tax avoidance and evasion, which they expect to bring in £2 billion a year. In total, this government will have spent about £1 billion on tax evasion, and expects that by 2014-15 it will allow them to collect £22 billion in taxes that would otherwise have been avoided.
No mansion tax
David Cameron and George Osborne have blocked the Liberal Democrats’ calls for a mansion tax of 1 per cent on properties worth more than £2 million. And they seem to have ruled out doing it through extra council tax bands or an increase in stamp duty too. Expect it to be a key part of the Lib Dem manifesto in 2015.
U-turn on removing under-25s’ housing benefits
James reported on Sunday that Clegg and Alexander have rejected Cameron’s plans to axe housing benefits for under-25s. Expect the Lib Dems to use this as an example of their preventing the ‘nastiest’ Tory policies, and expect it to feature in the 2015 Tory manifesto.