Autumn Statement: austerity extended

george-osborne-autumn-statement-fileDeeper cuts in public spending and social security are on the way but extra capital funding should provide a boost for infrastructure projects. Peter Cheney analyses the Chancellor’s Autumn Statement.

The UK can expect six more years of austerity with increasingly deep spending cuts continuing into the next Parliament, under forecasts announced in George Osborne’s Autumn Statement.

Significantly, the Chancellor has missed his target of reducing the deficit (as a proportion of UK GDP) by 2015-2016, with the Office for Budget Responsibility (OBR) now predicting that this will be achieved in 2016-2017.  The OBR has cut all its growth forecasts since the March 2012 Budget, with growth for 2012 revised down from 0.8 per cent to a 0.1 per cent contraction.

People claiming working age benefits, including jobseekers and income support recipients, will face an effective cut in payments due to a below inflation increase of 1 per cent.

Secretary of State Theresa Villiers vigorously defended the Chancellor’s approach.  Villiers pointed out that increasing the personal tax allowance (from £8,105 to £9,440) will take another 8,000 people in Northern Ireland out of the tax system and cut taxes for 615,000 others.  Barnett consequentials will allow the Executive to spend an extra £132 million in capital funding and £27 million in resource funding.

£50 million has also been allocated for ultra-fast fixed broadband in Derry and Northern Ireland’s power stations will be exempted from the carbon price floor, to ensure consistency across the all-island Single Electricity Market.

Another £50 million of borrowing can be deferred from this year to 2014-2015 to help complete the A5 road project.

On the same day, the Irish Government announced its strictest Budget since 2008.  A property tax, to be enforced from next July, will be payable on 0.18 per cent of the market value of a property up to €1 million and 0.25 per cent on the balance for higher value properties.  First-time buyers will be exempt for three years.

The duration of jobseeker’s benefit will also be reduced by three months and child benefit rates will also be cut.  Pay-related social insurance will be charged on rental and investment income, and on dividends and interest on deposits and savings.  Fuel duty, VAT and corporation tax were maintained at current rates.


Politically, the Autumn Statement comes just after the half-way point of the Coalition Government’s term in office.  2013 is the last full year without an election.  The European Parliament poll takes place in June 2014, to be followed by the general election in May 2015.

Sammy Wilson welcomed the extra capital allocation and exemption from the carbon price floor after he “robustly” made the case for that to Danny Alexander.  “In the current economic hardship, this will go some way in assisting those who are most vulnerable, ensuring that electricity bills remain at a fair and affordable rate,” he commented.

Wilson warned that spending cuts beyond 2014-2015 made it “critically important that all ministers deal responsibly with key policy areas to ensure that no unavoidable costs are imposed on us.”

Sinn Féin Finance Spokesman Daithí McKay did acknowledge the fuel duty decision, the £132 million capital allocation and the slight increase in the income tax threshold.  McKay roundly criticised the Conservatives for cutting benefits and claimed that Northern Ireland was sandwiched between “two austerity-fixated governments” in London and Dublin.

The UUP’s Economy Spokeswoman, Sandra Overend, called on Sammy Wilson to ensure that capital funding was targeted for infrastructure and the provision of jobs, rather than to “alleviate Executive shortfalls in other areas”.

Mark Durkan saw “a few positive rays” in an otherwise “gloomy and dismal” outlook.  The SDLP backed Derry’s bid for broadband funding but Durkan claimed that Osborne was disguising the figures to allow for more welfare cuts in future budgets.  The UK Government’s G8 presidency, he said, would have “meaningful authority” by revisiting controlled foreign company rules which allow large corporations to avoid tax.

Alliance MP Naomi Long called for a full cost-benefit analysis of the economic impact of air passenger duty, following on from the Northern Ireland Affairs Committee’s call for its abolition on short-haul internal flights.  She appreciated the Government’s support for aerospace (as a growth sector) and export finance but noted that the plans for recovery were “significantly off track”.

CBI Northern Ireland Chairman Ian Coulter was broadly positive, supporting Osborne’s moves on carbon pricing, budget allocations, fuel duty and broadband.  The Northern Ireland Executive, he said, “cannot afford to miss” the new PF2 approach to public-private partnerships and should also consider revenue financing and leveraging local government pension schemes to aid construction.

Paul McFlynn, an economist with the ICTU-funded Nevin Institute, welcomed the Chancellor’s conversion to increased capital expenditure but sensed a contradiction: “How can he argue that government investment is needed to boost growth while at the same time implementing austerity policies that achieve the opposite?”

Tax transfers in Scotland and Wales

No further progress on devolving corporation tax to Northern Ireland was announced in the Autumn Statement but the transfer of fiscal powers to Scotland and Wales is moving ahead.  This unprecedented change to the UK’s system of government is taking place alongside the debate over Scottish independence.

On the same day, the OBR published its second set of Scottish tax forecasts for income tax, landfill tax and stamp duty.  These will be devolved to Holyrood from April 2015 onwards.  The Silk Commission on fiscal devolution in Wales has suggested that the same taxes be transferred to Cardiff with a referendum held on income tax powers.

Corporation tax’s headline rate (24 per cent) will fall to 21 per cent in 2014.  Silk rejected its devolution to Wales unless this also occurred in Scotland and Northern Ireland.  Such a transfer would “impose administrative costs and compliance costs” and methods to calculate corporate profits in each part of the UK were “in no way straightforward.”  This reflects the CBI’s national line although the CBI in Northern Ireland has strongly campaigned for devolution.

Separately, the Silk Commission suggested that the OBR should produce or validate information on the public finances and economies of Scotland, Wales and Northern Ireland.  The OBR should also review and audit “technical aspects of the devolved funding system where appropriate.”

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