Coffee House

Autumn statement 2012: as it happened

Follow Coffee House's live coverage of George Osborne's 2012 autumn statement.

5 December 2012

Key points from the Autumn statement

  • Working-age benefits: will only rise by 1 per cent in each of the next three years rather than by inflation
  • Corporation tax cut: Extra percentage point cutdown to 21 per cent in 2014 compared to 28 per cent when George Osborne took office
  • Income tax threshold: will rise by £235 more than planned, to £9,440 in April 2013, saving basic-rate taxpayers an extra £47 next year
  • Fuel duty: the 3p per litre rise planned for January 2013 has been scrapped
  • Tax-free allowance: Reduction in tax-free allowance on pension contributions: from £50,000 a year to £40,000 and £1.5 million lifetime pot to £1.25 million.
  • Whitehall cuts: Extra cuts in Whitehall budgets to pay for £5 billion more in capital spending

1810: That’s it folks, we’re closing up this live blog. We hope you have enjoyed our coverage of 2012’s mini-budget. Come back to Coffee House as reaction continues to trickle through over the next few days.

1805: Steve Baker MP writes that the government needs to be carefulwith its  relationship with the bond markets:

‘Worse still, if the Bank loses control of inflation, bursting the bond market bubble, the game will be up. The Treasury and Bank of England would face appalling choices:  either interest rate rises and a brutal correction or more money creation in a self-defeating attempt to keep rates low.

‘There was some good news today but the real question is this: can the Government keep skating on thin bond market ice until the good times come again? ‘

1758: Lloyd Evans has sketched Osborne’s Commons appearance and was impressed with his performance:

‘From our sub-arctic chancellor this was a rip-roaring performance. Using all the arts perfected by Gordon Brown, he dazzled the house with his Autumn Statement. A chancellor should never be entirely candid. His job is to blame others for failure, to take credit for all successes, (no matter what their true origin), to engender confidence in the future and to attract cautious applause. George Osborne did all this.’

1750: Isabel reports that some Lib Dems are not openly advocating coalition unity today:

The Liberal Democrats are keen to use today to show that Coalition works, but Lord Oakeshott is in a less charitable mood. I’ve just had a chat with him about George Osborne’s explicit rejection of the mansion tax in his statement today as ‘intrusive’. The former Lib Dem Treasury spokesman in the House of Lords says:

‘I’m not withdrawing anything I have said about the Tories and the mansion tax. Intrusive is exactly what taxes on high earning tax dodgers have to be. George Osborne has performed a screeching handbrake turn on Tory donors’ orders.’

1731: Looks like today’s statement is not good news for an independent Scotland, writes Fraser:
The OBR has revised down North Sea Oil forecasts (p123) which, of course, has huge implications for the Union given that Alex Salmond’s case for independence is based on Scotland being in in surplus. Let’s look at 2012/13, the year before the referendum. North Sea revenues have crashed from £9.6 billion to £7.3 billion. And 2016/17 revenues have been downgraded from £5.3 billion to £4.6 billion. A tiny number for HM Treasury, but enough to increase Scotland’s deficit significantly. I’m not sure even Salmond can claim the OBR is cooking the books; he may blame Osborne for his 2011 tax on North Sea revenues — which led to a halving in exploration.
But there is good news for Iain Duncan Smith:
The OBR has decided that his [IDS] flagship Universal Credit scheme won’t be so expensive after all. It’s cost just £1 billion in 2015-16, its first full year, a 40 per cent reduction on earlier estimates. And just £1.8 billion after, down from £2.5 billion. Labour had used the earlier OBR forecasts to claim that Universal Credit was ‘sinking fast’. It now looks reasonably buoyant.

1700: Tracking inflation and earnings. On today’s forecasts earnings growth will continue to be below inflation until 2014 — meaning incomes will continue to fall in real-terms for another year.

1650: Tracking employment.The OBR expects more pain in the jobs market. Employment is forecast to remain flat throughout 2013 and to only start rising slowly again from the beginning of 2014.


With the working-age population rising, that’d mean the recent drop in unemployment will be reversed in the next year – back up to 2.7 million. Even by 2018, there’ll still be around 2.2 million unemployed; pre-recession it was 1.6 million:

16:42: Fraser looks at how the forecasts for the UK economy compare to the rest of the world:

If you take the OBR’s forecast for 2015 and compare it to the IMF’s forecast for the deficits in other major Western economies, the results are not pretty (below). Rather than having abolished the deficit, as Osborne hoped to have done just two years ago, the UK will now have the biggest deficit in the Western world. The impact of this is, of course, softened by the collapsing gilt rates.
16:23: Jonathan reports that the OBR says Labour was wrong: the deficit isn’t rising this year:

Labour have been attacking the government for seeing the deficit rise this year compared to last, but the OBR now says it’ll fall this year (even when you strip out the effects of the Royal Mail transfer, the QE interest transfer and the bank interventions transfer) — albeit very, very slightly. Two main factors have helped Osborne to achieve this:

1. Departmental underspends: which the OBR reckons will save the government £7.5 billion this year.
2. The 4G spectrum sale: which the OBR expects to raise £3.5 billion.

16:10: James has blogged on how today’s statement has improved the Chancellor’s standing:

There’s a sense of satisfaction among Tories, and Osborne allies in particular, this afternoon. First, the Autumn Statement didn’t all leak out in advance. Instead, the Chancellor had some news to make on the day—notably the cancelling of the 3p fuel duty rise and a further increase in the personal allowance. Second, it has drawn political battle-lines that they believe favour them.

15:40: Fraser is still  digging through the mini-budget and finding more surprises:

Zombie banks: sold at a LOSS of £16.5 billion. When Osborne first took office, the OBR thought he’d sell the nationalized banks at a profit. Now, they forecast a £16.5 billion loss for the RBS and Lloyds (p162), more than the (unreported) £14.3 billion they forecast in March. This disposal price will not  have been helped by the government’s bank regulation plans. Quite how much this cost the taxpayer is a sum the OBR won’t be calculating. 

Another £1.5 billion to EU: The complex formula governing the UK’s contribution to the EU means we’re now liable for an extra £1.5bn in the current financial year (OBR, p148)

A £200m lottery win: Thanks to ‘improved information’ the National Lottery will be paying the government an extra £200 million (p153 OBR)

15:30: Tracking the fiscal rules. Osborne admitted today that he’s missing his ‘supplementary target’ to have the debt-to-GDP ratio falling in 2015-16. Even with the policies announced today and the various accounting changes, it won’t start falling until 2016-17, and without them it would take another year:

Osborne is sticking to his fiscal mandate — to eliminate the structural current budget deficit within five years. Indeed, even without the recent changes and today’s policies, he’d still be on track for this (just):

15:20: Sebastian has dug up an article from The Spectator’s archive, which appears to have been choice reading by the Chancellor:

In November 2011, we asked a select group to put forward a single big idea to the Chancellor to kick start the economy. It’s interesting how many of these have now been implemented by the George Osborne: chopping the 50p tax rate, cutting back on welfare spending, reducing fuel duty and liberalising planning laws. It’s a shame he didn’t listen to The Spectator a year ago.

15:12: More from Fraser on the statement’s specifics:

Memo to Carney: we’re debt addicts!  Interestingly, the Budget has a memo showing how much Osborne’s economic model depends on low gilt rates. Table 1.3 says that if the rates go up 1 percentage point, it costs the government £21.7. By 2 points, it’s £43.8 billion. By 3 points (which would take us back to normal rates) it’d be an almighty £66.4 billion. Now, the UK’s low gilt rates are not proof of UK credibility, as the government likes to say. It’s purchased by QE and Sir Mervyn’s Magic Money Machine. Given that QE is understood to have lowered UK gilts by 0.7 to 1.5 points, this implies QE has saved £15 billion to £32 billion each year. But money, of course, cannot be magicked out of thin air. That cash will have come from pension funds (via lower rates of return on investments) and savers in general. QE will have also seen the assets the richest tenth surge by a six-figure sum.

The importance of Osborne’s 4G magic trick. A friend emails to say ‘all the cash is coming from either the sale of 4G or an unspecified tax hike or spending cuts of £4.6bn after the next general election’. Here’s the table:

14:57: The Spectator’s leader this week (which has just gone to press) on the statement is entitled ‘The great creep forward’. Here’s a preview:

14:51: Tracking the recovery. On today’s OBR forecasts, it’ll be late-2014 before GDP is back to its pre-recession peak. Here’s how the current ‘recovery’ compares to previous ones:

14:44: The CBI has reacted positively to Osborne’s statement:

‘£5 billion on near-term infrastructure, like the tube to Battersea, half a billion a year tax relief for small firms, and £1.5 billion extra export support should boost investment and create jobs. The Government now has everything to prove by delivering. Businesses need to see the Chancellor’s words translated into building sites on the ground.

‘It is no surprise that after a difficult year the economic realities dictate that austerity and debt reduction will take longer. The Chancellor has stuck to his guns on deficit reduction – avoiding deeper cuts or more borrowing in order to retain international credibility.’

14:36: Fraser is digging through the small print of the statement:

Osborne the Tax Cutter: today’s mini-Budget means small tax cuts every year until the election. In 2016-17, taxes will rise by £295 billion then £205  billion the year after. Spending is cut by £4.8bn this year, quite some figure. Then by just under £1  billion for the rest of this parliament. (Table 1, p9)

Osborne has no plans to balance budget: the forecast stretching to 2017-18 still shows state spending above receipts. UK may go two decades without ever balancing its books (Chart 1.7, p23)

14:26: Isabel writes in that the Liberal Democrats are already claiming victory over the personal tax allowance increase:

As I predicted, the tussle on tax has begun. Danny Alexander has sent out this email to Lib Dem activists (quite a feat as he’s currently on the TV, too):

‘Today it has been announced that from April more than 20 million people will be paying nearly £600 a year less in income tax than they were in 2010. That’s putting real money back in the pockets of ordinary families in tough times. Thanks to your campaigning, we’re delivering on our number one election pledge. The Autumn Statement set out the tough decisions Liberal Democrats are taking in government to build a stronger economy and fairer society. We have to fix the economic mess left by Labour and the banks, bring the deficit down, maintain our international credibility and create a platform for jobs and growth. We are asking the wealthy to pay more. We are bringing down the cost of our welfare system and cutting Whitehall waste. We’re helping small businesses too, by cutting taxes on new investments they make. And our actions to keep fuel duty down help small businesses and families alike. The road to recovery is longer than we hoped, but we are committed to finishing the job and making Britain’s economy strong again – so that everyone can get on in life. We should be proud of the role Liberal Democrats are playing in sorting out our country’s economic problems.’

Note that in the sentence before the line about ‘bringing down the cost of our welfare system’, Alexander argues that the government is making the wealthy pay more. This was the key deal that the Lib Dems were looking for in order to sign up to the welfare cuts. What will be interesting will be whether the Lib Dems give any clues about the ‘nasty’ bits that they blocked from the statement.

14:24: Tracking borrowing. What do the OBR’s borrowing figures look like when all the accounting changes are stripped out? It’s down very slightly this year — from £121.4 billion to £120.3 billion — but it’s not coming down nearly as quickly as hoped:

14:11: Isabel reports the reaction to the news that Osborne is dropping the planned rise in fuel tax:

George Osborne was keen to pitch his Autumn Statement to the ‘strivers’, and one of the key ways he did this was by scrapping the 3p rise in fuel duty that had been due for January.

This is good news for Conservative MPs in marginal seats full of commuters, and especially good for Robert Halfon, who has campaigned tirelessly on this issue. Halfon is pleased, adding his own striver pitch in his response:

‘This was a Robin Hood statement. George Osborne has put fuel in the tank of the British economy. He has not just delayed Labour’s 3p petrol tax, but scrapped it altogether. This will save an ordinary motorist in my constituency of Harlow around £80 next year. When families are hard-pressed, the Government should do everything to keep the cost of living down. That’s why I am delighted that the Chancellor has listened, and frozen fuel duty again.’

One thing to watch, on the subject of Robert Halfon, will be the tussle in the few hours between the Lib Dems and certain Tories to claim the decision to raise the personal tax allowance as a victory for their own party.

The Lib Dems have the higher claim: they had it in their manifesto, and Danny Alexander reiterated his desire to go even further with the threshold at the party’s autumn conference. But I suspect that won’t stop Tories like Halfon pointing out cutting taxes for the poor is still a Conservative policy.

14:03: Tracking growth. Even after today’s heavy downgrades, the OBR’s growth forecasts are still more optimistic than the independent average:

13:55: Fraser has found a key difference between the work of Osborne and his predecessor:

But also praises the tax rises:

13:51: Labour responds. Ed Balls’ response to Osborne was not as finessed as he might have hoped. The Shadow Chancellor managed to fluff his opening, as shown by this video from Guido: