Autumn statement preview: Osborne must not condemn UK to oblivion
08:54 04 December 2012
George Osborne could not have been clearer about his plans for the autumn statement when he said dropping austerity would be “a catastrophe”.
Instead he will tomorrow say his vigorous deficit reduction project – underpinned by steep spending cuts – will run its course. But he will confirm the course will actually be several years longer, running deep into the next Parliament.
Ironically, the chancellor has little hope of remaining in 11 Downing St that long if the UK’s growth remains stagnant. To avoid that, he will once again pull on his preferred lever tomorrow, trying to help the private sector fire the economy.
Tory Broadland MP Keith Simpson said: “I think the government did underestimate the impacts of cut backs on the private sector. Secondly, we are still very reliant as far as exports are concerned on the Eurozone.”
He added: “The public hoped what was meant by ‘austerity’ was that there would cuts for the first few months and in a couple of years things would get back to normal.
“But ministers, who were really shocked to see the size of the deficit and spiralling departmental budgets, never really thought that.”
To boost growth the chancellor is expected to announce tax breaks for shale gas development and venture capitalists. Meanwhile he may also reveal the first national infrastructure projects to be financed with £40bn of guarantees.
Some £5bn of export finance loan guarantees to help smaller businesses is expected along with a doubling of the capital investment allowance to £50,000 to get them spending.
In a move that will make many Norfolk MPs happy, Mr Osborne will likely postpone the 3p rise in fuel duty. Mr Simpson said: “There is no doubt that rising fuel duty has a really big impact in areas like my constituency.
“But I’m conscious that if he does do something to help, the chancellor has to get the money back. So we can’t complain when he looks for savings elsewhere.”
But critics, led by shadow chancellor Ed Balls, argue Mr Osborne’s economic remedies have not helped and will continue to fail.
Would the chancellor’s “catastrophe”, they ask, be any worse than the strangulation of Britain which they say is being wrought by his policies?
Their solution is borrowing money for state spending to stimulate demand in the economy.
Labour candidate for Norwich South Clive Lewis said: “The chancellor’s like the captain of a doomed ship that has lashed himself to the mast, determined to go down, but refusing to launch the lifeboats, dooming all aboard to oblivion.
“He has no long term plan for the economy. His only recommendation is more of the same.”
He added: “The autumn statement provides a real opportunity for him and his coalition partners to change course.”
In his hunt for savings Mr Osborne is expected to break the link which sees benefits rise with inflation, allowing the government to control state hand-outs as prices rise.
But wider moves on welfare, such as an outright freeze to working age benefits, have hit opposition from the Liberal Democrats. They were meant to rise by 2.2pc, but a compromise of 1pc appears to have been struck.
Meanwhile the coalition will seek to extract money from the wealthy by slashing the £50,000 annual tax free allowance for pension contributions.
While the Lib Dem’s “mansion tax” will wait, a major new tax avoidance drive has been launched to boost Treasury coffers.
Norman Lamb said: “Most people would be shocked with what we have seen in terms of successful companies paying virtually no tax.
“What we are determined to see is that in tough economic times people bear the burden according to their ability to do so.”
Mr Osborne’s biggest problem is that he set himself golden rules on taking office; one of which was to have debt as a proportion of GDP falling by 2015/16. But the new longer Plan A resembles an admission that the rule will be broken.
If so, Britain’s treasured triple A credit rating, which the government said was crucial to maintain, will be severely threatened and Mr Osborne’s ground will be yet shakier as he goes into 2013.