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The Autumn Statement 2013

1 2 2.1 2.2 3 3.1 3.2 3.3 3.4 3.5 3.6 4 The Autumn Statement - a bit of history ............................................................................................................. 1 Overview ............................................................................................................................................................................... 2 The economy ........................................................................................................................................................................ 2 The Opposition .................................................................................................................................................................... 3 Autumn Statement speculation ................................................................................................................................ 3 Tax ............................................................................................................................................................................................. 4 Energy ...................................................................................................................................................................................... 4 Business .................................................................................................................................................................................. 4 Wages ...................................................................................................................................................................................... 5 Property .................................................................................................................................................................................. 5 Infrastructure ........................................................................................................................................................................ 5 Political Intelligence ........................................................................................................................................................ 5

The Autumn Statement - a bit of history


The Autumn Statement is the second of the two most important economic statements that the Chancellor gives every year. The Chancellor will update the House on the Governments taxation and spending plans based on the economic projections provided by the Office for Budget Responsibility (OBR) a body set up by the coalition in 2010 to provide independent economic forecasts. The OBR provides an updated statement on the current state of the public finances and whether the Government is going to meet its own fiscal objectives. First delivered by Labours then Chancellor Denis Healy in 1976, the Autumn Statement has undergone various changes over the years and was labeled the Pre Budget Report under the last Labour administration to indicate that it had become more about trailing taxation and spending plans, rather than outlining economic projections and broad departmental spending allocations.

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Unfortunately for George Osborne, unlike during the Budget, protocol dictates that Chancellors are not allowed to refresh themselves with alcoholic drinks whilst delivering the Autumn Statement!

Overview
After three successive quarters of solid economic growth, and with consumer confidence picking up, the Chancellor George Osborne should be able to announce a healthy upward revision in growth forecasts, which will be published by the OBR, alongside his Autumn Statement speech tomorrow morning. The build-up to the delayed Statement has already seen a plethora of Government announcements; help for homeowners to pay energy bills, extra funds for the NHS to prevent a winter healthcare crisis, a planned 375bn investment in energy, transport, communications, and water projects, a cap in business rates and funding for off-shore wind farms are all expected to be highlights of the last major political event of 2014. Set piece events like the Autumn Statement are often viewed by politicians as an opportunity to speak to the nation on key issues of current politics. For the next few months these are likely to include energy prices and how the NHS will cope during a bitter winter. More widely, the Autumn Statement will reveal the governments economic and political strategy. The Chancellor will have a fundamental choice; to use any fiscal loosening to fund further popular giveaways ahead of the general election, or continue to make progress with deficit reduction and demonstrate the Governments resolve in sticking to its austerity argument.

2.1

The economy
The data so far this year suggest that we can expect to see a welcome upwards revision to the forecast for economic growth and a downward revision to the forecast for the headline deficit.

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The OBR had penciled in GDP growth of just 0.6% this year, but most analysts now expect a figure closer to 2%. For 2014, the OBR forecast in March was 1.8%; the consensus is now a more respectable 2.3%. Unfortunately any improvement will be small relative to the level of the deficit forecast in the Budget, and the deficit this year will still be very high by historical standards relative to what was projected at the start of this Parliament, and compared to what the Chancellor is ultimately hoping to achieve. So as he prepares to deliver the Autumn Statement, if the Chancellor is planning to make good on the promises of giveaways made during the party conference season he should also be considering ways of raising revenue to pay for them.

2.2

The Opposition
Just as the Government faces challenges with tomorrows Statement as too does the Labour party. The Opposition has long delivered dire warnings that the Chancellors approach to deficit reduction would lead to a flat lining economy, complete with the Shadow Chancellors infamous gesturing. Whilst the Chancellor can increasingly rely on an improving economy it is clear that the Government isnt gaining the political rewards for economic revival. Whilst some commentators have predicted that a healthy recovery has destroyed Labour and the Shadow Chancellors, economic credibility, by quickly moving the debate on to one about the cost of living rather than public spending, Labour has shown that they are politically adept in understanding that the economic recovery has changed the political debate. Expect Labour to use the Autumn Statement to try and articulate the dividing line between the parties: to position Labour as the party that understands the cost of living crisis and is prepared to protect the many and not the few; whilst portraying the coalition, and in particular the Conservative party, as out of touch and only protecting the very richest.

Autumn Statement speculation


Political Intelligence has captured some of the key Autumn Statement predictions on tax, business, energy, property and infrastructure;

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3.1

Tax
Speculation over tax cuts peaked at the beginning of this week but was brought to a crashing halt when the Prime Minister declared they were not a possibility until the end of the decade. Tomorrow will see the confirmation of the long-heralded tax cut for married couples and the national insurance tax cut for small businesses that is due to begin in April next year, but we shouldnt expect to hear any other huge revelations. The Chancellor has come under mounting pressure to raise the limit on personal ISAs, with savers and investors expecting a rise in the limit to 11,880 from next April as a means to encourage personal savings. On the other side there is pressure to cap ISA allowances, introducing a lifetime cap to prevent long-term tax free savings. The figure of 100,000 as a cap has been mooted.

3.2

Energy
Since Ed Miibands flagship energy announcement during the party conference season, which dominated the political debate for five full weeks, the need to counter this pledge has shaped the Governments thought. Having chosen to retract green levies as a means to reduce costs, the Government has been struggling to agree, with the Lib Dems being adamant that green initiatives are essential whilst the Prime Minister has had to deny reports he labeled the initiatives as green crap. Osborne has already announced the levies change that should bring household bills down by 50, but we can also expect a further refinement of the Energy Companies Obligation, providing insulation for lower income homes, and potentially further deductions from green levies.

3.3

Business
The CBI has outlined to the Chancellor that their priorities are to support business investment and encourage job creation, with a particular focus on small and medium sized businesses. Over the last five years the majority of job creation has come from small and medium sized businesses, and the CBI would like to see more secure sources of finances available to them. In a move to help high streets and businesses, the Chancellor will announce that business rate rises will be limited to 2% in England and Wales next year instead of being linked to inflation, this avoids the set 3.2% rise that would have come. He also plans to extend a scheme that offers rate relief to small businesses.

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3.4

Wages
The Chancellor is likely to reject the Office of National Statistics figures which showed wages for middle-income families falling by 6.4%. Alternative Treasury figures are expected to be published in tomorrows Autumn Statement that will claim workers' pay has kept pace with growth if rises in employers' national insurance and pension contributions are included. In addition, the personal allowance will rise to 10,000 from April 2014 with the Liberal Democrats wishing to go further on their flagship policy by raising the income tax threshold still further to 10,500 in April 2015.

3.5

Property
Fears of a house price bubble and the Bank of Englands decision to remove funding for lending support in the mortgage market is likely to increase pressure on the Chancellor to clarify an exit strategy for his Help to Buy scheme. The political popularity of the scheme, and signs the upturn in the market has led to an increase in planning permissions and homes under construction, means that Osborne is likely to argue that the Government needs more time to consider the future of the scheme. Senior advisors are also putting pressure on the Treasury to reduce stamp duty, though expectations for such a revelation at the Autumn Statement are not high, merely hopeful.

3.6

Infrastructure
The Government has already unveiled ambitious infrastructure spending plans detailing the next two decades. A review of the National Infrastructure Plan (NIP), being undertaken by Commercial Secretary to the Treasury Lord Deighton, will be published as part of Autumn Statement on Thursday. The NIP includes the Government selling off its 40% stake in the Eurostar rail service and, in all, about 375bn of investment in energy, transport, communications, and water projects is planned. The Chancellor is expected to make further announcements including the creation of a new court for infrastructure to avoid judicial review delays impacting on major projects; a proposed UK Guarantee for a new nuclear station; and 50m for a full redevelopment of the railway station at Gatwick Airport.

Political Intelligence
For further information on the Autumn Statement 2013, or how Political Intelligence can help your business, please contact our Group Managing Director Nicholas Lansman.
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