Reading between the lines in the Autumn Statement
- After the tax credits u-turn, this was Osborne’s first major occasion to fight back.
In the immediate months after the election George Osborne was walking on political water. His stewardship of the economy was widely seen as a major reason for the surprise election win in May and his brand of Tory modernisation was hailed as a major reason for the win. Polls of Tory members showed that he had sprinted clear of Theresa May and Boris Johnson in the race to be the next Conservative leader, the introduction of the National Living Wage and his speech at Tory conference were seen as masterpieces of modernisation. He was seen as the most powerful figure in government. And then tax credits happened. The row over cuts to tax credits dragged on for weeks, with defeat in the Lords bringing about the rethink announced today where Osborne announced that the changes would not be brought in after all, with no changes to the tax credit taper rate or the thresholds. The latest Tory leadership poll saw him slipping back to third. Today was his first chance to seize back control of the agenda. And he succeeded in getting a positive response from the Tory benches and some commenters. He should know, however, that the hard work, both politically and economically, lies ahead of him.
- Osborne wants this Autumn Statement to be one of the defining moments of this Parliament. The result of it will be a smaller state.
In the last Parliament, Osborne set the defining tone of the Parliament in his emergency budget and autumn statement, based around “clearing up Labour’s mess”. As senior Labour figures admitted after the election, the Chancellor had set the theme for the Parliament and Labour didn’t really recover from being on the ‘wrong side’ of the debate on the deficit. The Chancellor will be keen that today’s statement sets the tone for the remainder of this Parliament, with an emphasis being on continuing deficit reduction and the eventual goal of a surplus – a figure of £10.1bn as announced today. He’s made clear, with departmental cuts of around 20 per cent across the board that the government is seeking to reduce the size of the state in a fairly fundamental way – and refashion it, not least because the easier cuts were made in the last Parliament. Osborne would argue that the goal is to create a ‘smarter’ state, whereas his opponents would suggest that it represents the state simply doing less. Whether a surplus is a political tool or a genuine cultural shift, Osborne seems determined to continue beating the drum.
- It’s a statement full of traps and dividing lines for Labour
It’s been said in recent years that Labour couldn’t walk past a trap set up by the Chancellor without contriving a way of jumping head first into it. Indeed, the ‘trap’ emerging from the Budget regarding the welfare bill and Labour’s hesitant abstention was, arguably an important reason for Jeremy Corbyn’s ascent to the leadership. And John McDonnell’s decision to accept and then reject the fiscal responsibility charter was one of the earliest crises facing Corbyn’s Labour. From housing to education, this statement was spiced with measures designed to expose Labour as untrustworthy on the economy and the deficit, aiming to maximise Labour’s already considerable negatives. There was even an opportunity to taunt one of Labour’s attack lines on cuts to the police budget by confidently asserting it would be protected. From the National Living Wage to the clampdown on payday lenders, Osborne is adept at using set-piece occasions to do something eye-catching and counterintuitive. And today was no different – the protection of the policing budget was the biggest surprise given the budgetary pressures.
- There could also be future trouble emerging from the Tory benches.
The tax credits row showed that a wafer thin majority will not be an easy one for the Conservatives to handle over the next few years. Months on from the euphoria of the election win, Conservative MPs are taking on a much more dissenting air, with the government already being defeated on Europe in the Commons. David Cameron’s letter of concern about cuts in Oxfordshire is a reminder that concern about cuts is likely to reach even the most shirey of the shires, especially those that might suffer from the phasing out of the local government grants not being replaced by newly retained business rates receipts. On top of this, some fiscal hawks will continue to express scepticism about the speed of deficit reduction and the Party faces the real threat of being torn apart again over the EU referendum.
- Could there be trouble ahead with the £12 billion of identified welfare savings?
The low hanging fruit was, arguably, identified in the previous Parliament, leaving Osborne in a fix with regard to what to cut this time round, and this was compounded by his U-turn on tax credit cuts in the announcement. Instead he targeted measures at a tried and test formula –primarily in housing benefit. The announcement trailed some of the savings, including via a mix of capping housing benefit in the social sector for new tenancies and ending housing benefit and pension credit payments to those who have left the country for more than a month. Osborne claims to have found the £12bn but the Government may be looking forward to more welfare headaches once the detail has been scrutinised. There are signs throughout the Blue Book that some of the tougher decisions, around things like Housing Benefit, will be devolved to local authorities.
- Defence is one of the big winners from the Autumn Statement, reflecting the changed situation and pressure from Tory MPs.
For months before the election, the Prime Minister and Chancellor came under pressure to commit to maintaining defence spending at 2 per cent of GDP or higher. Until July, they resisted this pressure. Since then, they have both made much of their commitment to protect defence expenditure. And the changed situation, both domestically and internationally has emboldened them in this. The events in Paris have acted as a reminder about the importance of protecting defence.
- The Chancellor sees the continuing political importance of ring-fencing healthcare.
The ring-fencing of NHS spend was a manifesto commitment that has made the job of deficit reduction all the harder and particularly hard for the unprotected departments who have to do more in terms of finding savings. However, the Chancellor went further on health with funding for 10,000 nurse training places in universities and a 2% Council Tax precept to help fund the further integration of health and social care.
Healthcare took its place a central priority for the Government’s agenda in this parliament, with the goal to integrate health and social care by the end of the decade. Osborne noted that this added up to half a trillion of investment over the course of the Parliament. Building new hospitals, cancer testing within four weeks, and investment in mental health were all part of Osborne’s announcement.
- The importance to the Chancellor of the Northern Powerhouse and infrastructure was reflected in the statement.
There’s little doubt that the Northern Powerhouse is one of George Osborne’s flagship projects. He began the speech by claiming that there are more people in work in the Northern Powerhouse than ever before. Indeed, he has said that the project was one of the major reasons that he told the Prime Minister that he would prefer to stay on as Chancellor. And there was much of the Powerhouse agenda reflected today. The electrification of lines like the Trans-Pennine, new Enterprise Zones, £12bn Local Growth Fund, Transport for the North and the confirmation that elected mayors will be able to raise business rates to invest in specific infrastructure.
- A few sweeteners to key electoral areas were included.
The Chancellor kept an eye on key elections next year in the devolved assemblies and for the London mayoralty. London benefits from £11bn of transport investment and its own Help to Buy programme – with a shout out from the Chancellor to Conservative candidate for Mayor Zac Goldsmith during the statement. Similarly, the Labour Government in Wales got a mention when Osborne contrasted the Government’s funding increase in the NHS while accusing the Labour administration in Wales of cutting the NHS. For Wales, he also confirmed a funding guarantee and the devolution of income tax without a referendum. Osborne threw in a pop at the SNP for basing their economic case for Scottish independence on the previously high oil price. Kent and the South West – areas both key to the Conservatives’ majority – also featured in today’s speech.
10. George Osborne still likes to think of himself as a builder.
It’s a recurring joke in Westminster that the Chancellor is never happier than when donning high viz and hard hat, and there were several references in the speech to the Conservatives being the party of the builders. The Autumn Statement has a five point plan on creating opportunities for home ownership. This includes measures already announced, such as the extension of Right to Buy to Housing Association tenants. But it also includes some big wins for house builders with a £2.3 billion fund to deliver 200,000 starter homes and a further £2.3 billion in loans to kick-start estate regeneration. A new help to buy fund will help deliver 135,000 shared ownership homes, for householders earning less than £80,000 outside London and £90,000 in London.