By Lori Inglis Hall
On Wednesday George Osborne will unveil his latest package of financial policy, as part of his ambitious plan to create a surplus by 2020. It’s clear he has his work cut out, with recent figures from Office for National Security showing the deficit has actually grown by a whopping 16% since October 2014.
With economists predicting a big miss for his deficit targets, the Chancellor will set out just how he intends to deliver the programme of cuts promised by the Conservative Party at the 2015 general election, with speculation rife as to what might be included.
The arguments over proposed cuts to Tax Credits have received widespread coverage in the mainstream press, and whatever the outcome of Wednesday’s statement, it seems likely it will contain proposals which could lead to potential hardship for thousands of ‘hardworking families’ and ‘strivers’.
It’s possible the Autumn Statement will include policy details on just how the Government plans to solve the UK’s Housing crisis, with more details about the 20,000 starter homes the Government promised to build at the election.
The Northern Powerhouse, more details on the UK Living Wage, a huge reduction in Transport for London’s government grant, and reforms to pensions have all been touted as possible points of focus for Wednesday’s statement.
With only a few days to go and the Chancellor himself declaring ‘economic security to be the ‘beating heart’ of the spending review, here’s five things you should know about the Autumn Statement.
1. All eyes are on the potential cuts to Tax Credits
Here’s a little summary on why the proposed cuts are a terrible idea. After weeks of outcry, a humiliating defeat in the House of Lords, and with even his own Backbenchers threatening revolt, Osborne might seek to ‘soften the blow’ of potential cuts to tax credits, which could see hard working families lose over £1000 a year. We’ll discover on Wednesday just how fundamental a U-turn this will be. His appearance on the Andrew Marr show suggests it might not be quite as dramatic as his critics have hoped.
The Resolution Foundation has argued that the proposed cuts could increase child poverty and push more working families into poverty (and new figures suggest some 20million people are already there), and yet despite almost universal condemnation of the plans, Osborne is adamant that he needs to find a saving of £4.4bn from the welfare state.
This begs the question of just where the Chancellor’s axe will fall if he does retreat from the severity of his proposed cuts. After a skirmish with Iain Duncan Smith over plans to raid the Universal Credit roll-out budget, it now appears Osborne might have set his sights on…
2. Housing Benefit
Osborne is likely to spin his possible cuts to Housing Benefit as a means of incentivising households to look for cheaper housing.
The Institute of Public Policy Research says the cuts will mean an average loss of £570 a year for households living in the private rented sector, with social housing tenants losing, on average, £460 a year. This would be particularly tough for people trapped in high cost housing markets such as London, Cambridge, York and Oxford.
What’s worse, the cuts are likely to target exactly the same group of in-work ‘hard-working strivers’ who would have been affected by cuts to tax credits. In short, Osborne is hitting the same people, just in a slightly less emotive fashion.
3. Deep cuts for Government departments
Seven Whitehall departments and nine government bodies have so far agreed to cuts totalling 21% of their day-to-day running costs by the 2019/2020 financial year, which equates to annual reductions of about 6% a year. This will deliver savings of more than £4bn by 2019/2020, but this is significantly less than the 40% reductions the Chancellor threatened over the summer.
Some of the biggest departments, including the Foreign Office and the Home Office are still locked in negotiations with the Treasury, and it’s likely that it’s here we will see some of the biggest and most drastic cuts.
This handy diagram from the Institute of Government gives some idea of the scale of cuts to come across Whitehall:
All departmental cuts are to be delivered through further efficiency savings. At HMRC, already in a bit a mess because of reductions in staffing levels, this will be delivered through the digitisation of the tax system. The deal between the Treasury and the Department of Work and Pensions (after a series of tense negotiations between Osborne and Iain Duncan Smith) is likely to mean reductions in staffing numbers across the UK’s network of Job Centres.
But the real focus will be on the Home Office, with Labour arguing that any cuts over 5% to the police budget will put the public at grave risk in wake of the recent terror attacks in Paris.
4. It’s ‘Which Public Service will be privatised this time’ bingo!
We’ve already said adios from the Pubic portfolio to the criminally undervalued Royal Mail, Lloyds Bank, Eurostar, and the loss-making Royal Bank of Scotland, so what’s next?
Possibly Housing Associations. These independent and arguably private charities actually qualify as public sector bodies due to their reliance on large government grants, according to the UK Statistics Watchdog. If Osborne deregulates the sector he could sell £40bn in no interest loans towards building his much trumpeted raft of starter homes. Potentially good news for house building, but terrible in terms of much needed social housing.
The consistently underperforming Network Rail and Channel 4 have both been mentioned as possible contenders for privatisation. The latter would be a boon for the Department of Culture, Media and Sport, which is facing severe cuts to its day-to-day running expenditure.
5. Corporation Tax
Osborne provoked a storm of consternation in July when he announced plans to reduce Corporation Tax from 20% to 18% by 2020, whilst simultaneously slashing welfare spending. Osborne argued that the cuts to corporation tax, which he’d already reduced during the previous Parliament, would encourage investment and create jobs.
The Resolution Foundation points out that a reversal of this policy, as well as dropping the planned increase in the Inheritance Tax threshold would save £3.4bn by the end of the Parliament and would mean Osborne could drop his plans to raid the pockets of some of the UK’s poorest households.
Interestingly, the cuts to corporation tax directly benefit Osborne’s family business, Osborne and Little, in which the Chancellor holds shares. That is, it would be of benefit if the company actually paid corporation tax. According to Private Eye, the corporation has managed to avoid the tax for the last seven years, despite profits of nearly £200million. The corporation even received a tax credit of £12,000 of public money in 2010.
Sadly, draft legislation to tackle aggressive tax avoidance has been pushed back due to ‘complexity’, and won’t feature in the Autumn Statement.