What to expect in the Autumn Statement 2015

Who will benefit and what impact will the CSR have?

Now that the Conservatives have left Manchester, animated with a renewed sense of purpose following their first Autumn Conference with a majority government in 20 years, the Treasury team will be busy preparing themselves for the Autumn Statement on 25th November.

Not one to miss an opportunity to set the narrative, the Chancellor of the Exchequer used his speech at Conference to allude to some of what we can expect in the Autumn Statement. For instance, the establishment of a National Infrastructure Commission, led by former Labour Transport Minister Lord Adonis, will provide a five-year strategic review of the UK’s infrastructure priorities.

The headline announcement in Osborne’s speech, however, was the reform to business rates, allowing councils to retain business rates generated in their local areas and to set these rates themselves. The headline of £26bn for local councils was warmly received by local government groups who have been lobbying for this for years, but some councils may lose out in practice if they have a low tax – see Jon McLeod’s piece in City AM for more. Charities and others who experience reliefs already may be nervous about what this means for them. However, taken in the broader context of a Chancellor not unaccustomed to devolving responsibilities to the local level, where there have been significant cuts to public services, this shows Osborne’s canniness in allowing councils to be the bearer of bad news. You can read my colleague’s earlier blog on the reforms to local government finance.  Jim Pickard also offers an interesting analysis of the detail of the policy briefed in by the Treasury in the FT. The Treasury’s Review of Business Rates is expected to come out in the spending review as well.

So what does this mean for the Autumn Statement? Well, two things to bear in mind are that the Autumn Statement has become in essence a mini-Budget, an opportunity for a Chancellor to make announcements in-between elections. Also, this year the Autumn Statement will be delivered alongside the publication of the aforementioned Comprehensive Spending Review, which will provide the backdrop for all announcements.

Whilst the economy returns to growth, this Government’s relentless determination to clear the deficit and bring about a budget surplus by 2019 does not signal any slowdown in reductions to public spending. Since May unprotected Government Departments have been scrambling to find efficiency savings of between 25 and 40%. Departmental plans are now in and a team in the Treasury will be busy slicing and dicing to see which areas of spending can be cut, merged or scrapped altogether.

Departmental Programme and Administration Budgets £ billion
Plans
2015-16
Education 53.5
NHS (Health) 111.9
Transport 2.3
CLG Communities 2.5
CLG Local Government 10.6
Business, Innovation and Skills 13.1
Home Office 10.2
Justice 6.3
Law Officers’ Departments 0.5
Defence 28.1
Foreign and Commonwealth Office 1.8
International Development 7.4
Energy and Climate Change 1.4
Environment, Food and Rural Affairs 1.6
Culture, Media and Sport 1.1
Work and Pensions 6.3
Scotland 25.5
Wales 12.9
Northern Ireland 9.6
Chancellor’s Departments 3.5
Cabinet Office 2.5

Source of diagram: Budget 2015

Whilst we don’t know exactly which departments will be expected to deliver the cuts and what impact this might have on public services, we have seen hints of which departments are seeking cuts. In the Ministry of Justice Michael Gove’s track record as a reformer is likely to be felt in this unprotected department, with the Justice Secretary setting out ambitious reforms to the prison system. The Secretary of State for Energy and Climate Change, Amber Rudd, looks set to remove a whole host of remaining subsidy available to the renewables industry. Local government looks set for another barrage of cuts in light of Osborne’s announcements at Conference, despite Greg Clark appearing more of a champion for local government than his predecessor.

The Institute for Fiscal Studies has published a report on the spending review, which finds departments experiencing an average cut of around 27% to their budgets. The IFS has also produced a handy online calculator showing what choices the Chancellor could be facing.

What won’t be in the Autumn Statement? A climb down on tax credits? The Prime Minister has ruled this out, saying the debate has been had. This is despite calls from within his party to revisit the policy – perhaps most notably from David Davis who raised concerns that reform to tax credits could be this government’s poll tax.  However, if the media attention on this issue does not go away, the Chancellor may have to pull a rabbit out of the hat on childcare or a supplement for workers – even if it is a small and underwhelming rabbit.

So, will Autumn Statement 2015 have any good news to cancel out the doom and gloom anticipated in the spending review?

The establishment of a National Infrastructure Commission signals Osborne’s keenness to get the country’s hardware going, so we may expect to see announcements on roads and railways – even if these are reiterations of previous commitments by the Government.

If we look at previous Budgets and Autumn Statements, pensioners and families have been the main beneficiaries of reforms. We know that housing is becoming a major priority, as the Prime Minister outlined in his speech to Conference, so perhaps younger people looking to get on the property ladder could see some further incentives on top of the Right to Buy ISA and other measures? With the dust settling on Osborne’s big announcement in the Summer Budget of a National Living Wage, we may see some details on support available for the social care providers and other sectors that have been hit particularly hard by the policy.

What is clear is that there is a big challenge for the Chancellor to deliver some good news in the Autumn Statement so that the cuts announced in the spending review do not outweigh the success of his long term economic plan.