The UK economy is very weak and the Office for Budget Responsibility (OBR) has changed their forecast for growth of 0.8% this year to a contraction of 0.1%. The biggest factor in the OBR’s revised forecast is the weakness of exports which is a reflection of the weakness of European and other global markets.
The chancellor wants to reduce the country’s debt but public debt is now forecast to continue rising until 2016 when it will be £1.5 trillion which is 80% of GDP. Any number in the trillions is too big to comprehend and does really mean anything. However, the 80% figure is broadly in line with France and Germany and nowhere near Greece’s figure of over 140%. My personal interpretation is therefore that we are not heading for the sort of problems that Greece is experiencing. I am also reassured that it is forecast to peak in 2016 and will therefore reduce after 2016. Politically it is bad news for George Osborne because 2016 means he has missed his original target date but given all the global economic challenges at the moment it is probably good news that the peak is still in this decade !!!
The numbers above are just numbers to the man in the street. The man in the street wants to know how the Autumn Statement affect the money in his or her wallet. I remember George Osborne’s last budget where a number budget announcements had to be cancelled after the budget. This Autumn Statement seems to be much more carefully considered and seems to impact the wealthy as well as those on welfare.
Some of the key announcements in the budget:
- 3p per litre increase in fuel prices planned for 1st Jan 2013 has been cancelled
- Personally, I think if he hadn’t cancelled it in the Autumn Statement the public outcry would have forced him to cancel it before Xmas
- Pension tax free allowance reduced
- This will only impact high earners who save very large amounts into a pension. So it is nice to see that George Osborne has got the message that high earners must also feel the pain.
- Personal tax free allowance will increase to £9,440
- George Osborne has actually increased this by £235 more than he had stated in the budget earlier this year. This will obviously be of benefit to low paid workers. I think this another sign that George Osborne listed to the critics of his previous budget.
- Benefits will rise by 1%
- With inflation at 2.7% (as measured by the Consumer Prices Index) this means a net reduction in benefits. However, it is broadly in line with pay increases for those in work. This is obviously controversial and is going to create a lot of post budget discussion.
My personal conclusion from the Autumn Statement is that the countries economic situation is not good but so long as we maintain a plan that will eventually lead to the ratio of debt to GDP reducing then there will be light at the end of the tunnel. I do not believe that increasing the countries debt to solve the problem will solve the countries economic problems in the long term. Although I accept it may seem better in the short term but eventually it will lead to a Greek style situation.
I believe that George Osborne has learnt from his previous budget and he has impacted both those on welfare and the very wealthy and where he found some flexibility to be generous it has been to the low paid. The most controversial aspect of the budget will be the below inflation increase for those on welfare benefits.