This Wednesday, Chancellor, George Osborne, will deliver his Autumn Statement to the Commons as well as the results of the Treasury’s Comprehensive Spending Review. He will outline how he intends to achieve his ambition and the Conservative Manifesto’s promise of eliminating Britain’s deficit by 2020. This is a key moment for him to demonstrate the legitimacy and determination of the Government’s “long-term economic plan” as well as to cement his credibility as the future leader of the party.
However, Osborne is facing a much more challenging backdrop than he anticipated at the Summer Budget. Figures released last week from the Office of Budget Responsibility show weak tax revenues in October, as well as spending overshoots in the first seven months of the financial year that suggest the Government will struggle to lower the deficit in line with its targets this year. Some economists have predicted an overshoot of £10bn by the end of this financial year. This has been further complicated by the defeat of Osborne’s £4.4bn reduction in tax credits in the House of Lords, as well as calls for “frontloading” of funding for the NHS from NHS England and extra committed funding for counter-terrorism work.
Osborne has insisted that there has been no cabinet “war”, but no amount of spin can hide the weeks of political negotiation that has occurred between departments. He has been seeking £20bn of public spending reductions in “unprotected” areas which include policing, business support, science, local government and justice – amounting to cuts of about 25 per cent by 2020.
Shadow Chancellor John McDonnell should be rubbing his hands in glee at the prospect of responding to a statement and spending review that will have such far-reaching impact on welfare and public services. However, the stakes are high, anything less than a stellar response from McDonnell will give more ammunition to Labour MPs who are rapidly and vocally tiring of the party’s new leadership. Whilst Osborne may have sincere faith in his vision for a “Lower welfare, higher wage” society, its implications will be vast, and deserve proper scrutiny from an effective opposition. If the Labour party fail to successfully play this role and actively communicate an alternative and legitimate economic vision, this is likely to become another nail in the “Corbynite Coffin”. Likewise, Mr Osborne is well rehearsed at delivering such financial statements and will no doubt have some political tricks up his sleeve to soften the blow and undermine the increasingly fragile opposition.
10 things to look out for on Wednesday:
1. Changes to Tax Credits and Housing Benefit
Commentators and pundits will be focussing on how Osborne manages the fallout from his most controversial defeat to date. After his plans to cut working tax credits were opposed in the House of Lords, the Chancellor will use the Spending Review to mitigate the impact of these cuts. In addition, Work and Pensions Secretary, Iain Duncan Smith, has fought off attempts to take money from his Universal Credit Scheme in the form of cuts to work incentives; instead housing benefit will be reduced to help soften the impact of tax credit cuts on recipients.
2. Cuts to Science and Skills
The Department for Business Innovation and Skills, led by Thatcherite, Sajid Javid will take a big hit, with decreases in funding to innovation, science, apprenticeships and further education expected. Industry insiders confirmed last week that part of the budget for science and technology — £4.6bn and £600m a year respectively — will be switched from grants to “a range” of funding options including loans. This will allow Osborne to claim that the overall funding pot has increased, even though direct government support has been cut. In addition, expect more information on the Government’s proposed Apprenticeships levy.
3. Fuel Duty
Fuel Duty could also be a target. Duty on diesel and petrol has been frozen since 2011 and the chancellor may decide that, with oil prices down by more than half over the past year, the country could shoulder a 1p or 2p rise in the duty.
4. Police Service
Discussions with the Home Secretary, Theresa May have been described as “fraught”. There has been a commitment of a 30% increase in counter-terrorism spending however a further cut to the police budget is likely to compound tensions between the Home Office and Treasury.
5. NHS and Social Care
Simon Stevens, CEO of NHS England, has warned that the health service needs £8bn in extra annual funding, on top of what it currently receives, to meet demands by 2020. Ministers have already committed to that, however, they are yet to commit to a “frontloading” of this funding towards the beginning of the five years. Simon Stevens has been considerably vocal in the last week in calling on Osborne to bring forward this funding to ensure they can meet an agreeable target.
6. Devolution Deals
During the Summer Budget, Osborne set local authorities a deadline of 4 September to submit proposals on what powers they sought and how they would use them. A number of devolution deals have now been announced, including an agreement with the West Midlands Combined Authority. It is expected that multi-year settlements will be agreed at the Spending Review.
The Chancellor committed to meeting NATO’s target of spending 2% of GDP on defence every year, up to 2020. This will see spending rise in real terms 0.5% above inflation every year during this parliament. The £40bn predicted cost of four new Trident submarines have not been included in these figures so is likely to feature in the statement.
8. National Lottery Funding
It is expected that the government is planning to reduce the Fund’s share of Lottery proceeds from 40% to 22% – adding up to a funding cut of £320m. The money instead would go to the National Lottery’s arts and sports distributors to make up for cash shortfalls in their funding as a result of cuts to be announced on Wednesday.
9. Energy and Climate Change
Rumours around Whitehall suggest that the Department for Energy and Climate Change is going to be hit hard. Budget reductions are expected at 21% and with the protected spend for nuclear decommissioning in this department, this means other activities will be hit hard for instance green subsidies.
The Department for Transport has committed to an average of 30% cuts. Capital spending is not included however, and the government has already committed to spend £100bn through on infrastructure upgrades through the newly established Infrastructure Commission.