The chancellor’s autumn statement is a time for the government to take stock. It provides a chance to tell parliament and the country about the state of the economy, to explain any changes of direction and to announce any initiatives. This Tuesday, George Osborne will be under more scrutiny than usual.
There are usually few surprises in the speech. Unlike the budget, there aren’t quite the same restrictions on offering hints about what the chancellor might say. Over the past few days and weeks, we have had a reasonable amount of information, trailing the kind of ideas that could be in Mr Osborne’s mind. There is also no shortage of advice.
Take, for example, the ITEM Club. Run by Ernst & Young, it is the only economic forecasting group which uses the same model of the economy used by the Treasury. That makes its projections all the more interesting – and the latest to be released will make worrying reading for the coalition’s supporters.
It warns that the crisis in the eurozone, along with high inflation and low wage growth, means that the government’s growth forecasts on Tuesday will have to be cut, quite substantially. It says that the UK economy will only grow by 0.9 per cent this year, down from the original forecast of 1.7 per cent. As for 2012, growth will drop from 2.5 per cent to just 1 per cent.
ITEM also argues that the Office for Budget Responsibility (OBR) has been too optimistic when it comes to public sector jobs. It suggests that, instead of 400,000 jobs being cut, the real target will have to be closer to 500,000. That will not be good news at a time when the government is facing a public sector rebellion over pension reform.
On the positive side, however, there should be some good news for business. Firms large and small have been waiting to find out what the chancellor meant when he talked of “credit easing” earlier in the year. It seems that he will reveal all by announcing three schemes to release £40 billion in loans to small firms.
One would be a kind of credit guarantee scheme. The government would put a guarantee behind the banks which would then borrow on the financial markets. They would then have to pass on those cheaper lending rates to small and medium-sized companies. The indications are that this would apply to firms turning over less than £50 million.
Another smaller scheme will mean that the government takes a stake in an investment fund along with private sector investors. This fund will then provide a source of credit or loans to medium-sized companies. Finally, there is a plan aimed at larger firms which would be able to sell bonds – business IOUs – to the market as an alternative to using traditional banking.
Ministers believe these new programmes would be in place by the start of the new year, running for the next two years. In the figures already in the open, a company could save some £50,000 a year on a £5m loan as a result of paying a typical interest rate of 4 per cent instead the commercial 5 per cent. A Treasury source told the Press Association that this was a "game changer".
However, shadow chancellor Ed Balls and shadow business secretary Chuka Umunna have written to Mr Osborne, suggesting that this wouldn’t be enough to revive economic growth. Their letter pointed out that “over 1,200 people a day are entering unemployment. Businesses are going bankrupt at a faster rate than a year ago – despite your expressed wish for a private sector-led recovery.”
There will be other measures to ease what has now become known as the “squeezed middle”. For instance, the chancellor is expected to announce changes to the way rail tickets are priced. At the moment, there is a formula which would have seen prices rise by more than 8 per cent from January. It is now believed that the rise will be cut to around 6 per cent.
Mr Osborne is also expected to confirm a freeze or delay in the planned rise in fuel duty, which again would have come into effect in the new year. Motoring groups feared that the 5p a litre rise, when added to the annual inflation-linked increase in duty later in the year, would see the cost of petrol rise by 8p a litre from the summer.
Despite these positive reforms, the statement is likely to be overshadowed by further grim news on the economy. As well as the lower forecasts from the OBR, the Organisation for Economic Co-operation and Development is expected to predict that, from the start of 2012, the UK will see two successive quarters of negative growth putting us back in recession.
And speaking on Radio 4’s The World This Weekend, President Obama’s former chief economic adviser, Austan Goolsbee, was asked about the UK’s austerity programme. “If you’re going to do serious damage to the growth prospects of your country," he warned, "the market is going to punish you not reward you for doing that kind of thing. If everything goes south [in the eurozone], being in a heavy austerity mode is not going to be a fun place to be.”
Donate to us: support independent, intelligent, in-depth Scottish journalism from just 3p a day
Related posts: