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Autumn Statement 2012 from the UK HM Treasury

"We reaffirm our commitment to reducing the deficit

Autumn Statement 2012
- HM Treasury

He was clear back in March and he made it clear again today. Despite breaking one of his fiscal rules, George Osborne nonetheless dispelled any rising doubts about his commitment to deficit and debt reduction. Like March’s Budget, the Autumn Statement remained “fiscally neutral” and, according to the independent Office for Budget Responsibility (OBR), will be economically neutral too. But to balance the books the Chancellor has to rely on Swiss cooperation on tax issues, a 4G spectrum auction and an extra year of fiscal austerity.

A weaker economic outlook than in March

The OBR provided the Government with 192 pages of independent economic and fiscal forecasts. It now expects GDP to contract by 0.1% in 2012, compared with expected growth of 0.8% back in March. Growth in 2013 has also been revised down, from 2% to 1.2%, with 2014 now expected to see growth of 2%. It is only from 2015 onwards, when output is expected to rise by 2.4% or more, that the OBR sees the UK economy growing at, or above, its potential rate of growth (2.3% according to the OBR),

The source of the UK’s challenging outlook (and the downward revisions to the near term forecasts) is external. The OBR highlights developments in the Eurozone and elsewhere in the world that make the outlook worse than previously thought. Net exports are now expected to contribute -0.6 percentage points to the overall GDP contraction and an extra and equal drag from companies adjusting their inventories. So it is up to growth in consumption, investment and government spending to keep the contraction in 2012 from being worse than 0.1%.

Supplementary target missed by a year, fiscal mandate rolls on

The OBR now expects net debt as a share of GDP to peak in 2015/16, one year later than what was expected in March. This means that the Chancellor will miss his supplementary fiscal target by one year. However, the OBR still believes that there is a greater than 50% chance that the Chancellor will meet his fiscal mandate of balancing the budget (adjusted for swings in the economy) in the next five years. However, the margin for error has narrowed since March. The deficit is expected to be closed a full two years later than was expected back in June 2010, with net debt as a share of GDP peaking at 79.9%, a full 10 percentage points higher than expected at the time of the Coalition’s first budget.

Less admin, more infrastructure

The Chancellor announced £5bn in new infrastructure spending, with £1.5bn going towards building roads and £1bn towards building schools. To pay for this, government departments will see their resource budgets shrink by a further 1% next year and 2% the year after, although there are exceptions. But to balance the books, the Chancellor also relied on a one-off windfall from the 4G spectrum auction, a new treaty on tax avoidance with Switzerland (that is yet to be ratified) and £4.5 billion in further consolidation that has been “assumed” for 2017/18. This also helps to pay for a further 1% cut to the rate of corporation tax, bringing it down to 21% from April 2014 onwards (accompanied by a rise in the bank levy to 0.13%). Osborne also cancelled the 3p/litre fuel duty rise set to occur in January, and pushed back a further rise to September of next year. Other new policies included an additional £350million to the regional growth fund, more money to promote UK exports and an increase in the Annual Investment Allowance from £25k to 250k. Households also benefitted from some of Chancellor Osborne’s Christmas cheer and will receive a further £235 rise in the income tax threshold, taking it to £9,440 from April next year. Overall, the OBR expects the economic impact of the new policy measures to provide a small boost to growth of 0.1% in 2013 and 2014.

It will take another ten years to bring us back to 2007 levels at the earliest!

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Autumn Statement 2012 from the HM Treasury in the UK

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Comments on this item:

08-12-2012 11:50:40
I do not think UK economy will ever go up the way UK is going. I do not see any value addition in UK.They were at one time what China is today to the world with a difference. UK introduced innovation in technology and new value added products which made UK what it became.But now it has nothing to offer to the world nor can it earn.They also do not have the skills with them. What they have is some amount of unused money which will erode in no time if not invested properly.Fist is to go back to manufacturing and fund research in new things as energy,biotechnology,healthcare etc. Get highly skilled people from other countries to help you and trigger growth.
aloke Chakravartty
10-12-2012 20:08:35
The UK is a wonderful country that is why so many people wish to live in the UK.

The UK have many skilled and experienced people who are innovators with vision.

The UK is a world leader in many sectors and a power for the future.

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