World Economy

Autumn Statement predictions: 10 things to look out for

Chris Giles

George Osborne's Autumn Statement and spending review will seek to show the chancellor delivering a comprehensive plan to balance the books by 2020.

He needs to reshape the public sector and resolve his difficulties over plans to cut tax credits.

The statement is designed to restore his dented political credibility and is likely to have the following themes:

London Big Ben and traffic on Westminster Bridge
Sylvain Sonnet | The Image Bank | Getty Images

1. The economy has grown in line with the Office for Budget Responsibility's July forecast, so there are few reasons for the fiscal watchdog to change the broad outlook. Inflation is lower than expected, raising the prospect that the cash size of the economy will expand less than the OBR thought. But productivity growth has recovered, removing one big risk to the forecast.

2. The public finances are still likely to show the public debt burden falling from this year on and recording a surplus by 2019-20, meeting Mr Osborne's fiscal rules, but with a smaller margin for error than the £10bn he forecast in July. Lower interest rates reduce debt interest payments, offsetting weaker tax revenues and the addition of housing associations' borrowing and debts to the books.

3. The spending review will remove 5 per cent of day-to-day public spending in real terms from government departments. Because health, schools, defence and overseas aid — three quarters of departmental spending — have some form of protection, unprotected departments face cuts of about 27 per cent. Police, justice and local government have most to fear.

UK government to cut public spending

4. The chancellor's defeat in the Lords over tax credits forces him at the very least to ease the transition towards less generous tax credits for poor working families. Expect the chancellor to phase in his cuts for new claimants over the next three years, borrowing a little more. He is also likely to offset smaller tax credit cuts with other welfare cuts and tax increases.

5. One way of easing the pain in public services is to get the private sector to pay for services. Mr Osborne has already forced companies to pay for apprentices and students to take grants instead of loans for living costs. The Treasury is considering ending grants for trainee nurses. Although user charges are unlikely to be introduced for core frontline services, they are on the rise. Expect more.

6. Privatising assets helps Mr Osborne reduce public debt, often at the cost of lowering government receipts. The chancellor has embarked on the largest privatisation programme since the Thatcher government, seeking to offload the nationalised banks, Channel 4, Urenco, the Royal Mint, the Land Registry and other small government offices. Income-earning assets such as the student loan book are also on the block.

7. Where privatisation is impossible or undesirable, the government is increasingly looking to make publicly owned assets work harder, raising income streams from them to ease spending restraint. Transport for London, for example, has agreed to raise more revenue from its land holdings. The Ministry of Defence, Network Rail and local authorities are also under great pressure to earn more from the land they own.

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8. Part of Mr Osborne's Northern Powerhouse idea is to devolve power over transport, planning, employment, skills and other services from Westminster to large local authorities. These city deals, which have been signed with authorities across England, also allow authorities more control over revenues and to keep the gains from growth. They also allow the chancellor to pass the buck for spending cuts to local politicians.

9. To make the books balance by the end of the decade, Mr Osborne is likely to follow his example in the summer Budget and raise taxes without admitting as much. Core rates of income tax, value added tax and corporate tax are protected, but there are many other sources of revenue. Among tax increases under discussion, low oil prices will put fuel taxes back into the spotlight for the first time in five years and self-employed contractors are likely to face higher income taxes

UK to boost security spending

10. Enterprising Treasury officials always compete to be the author of Mr Osborne's rabbit out of his hat at the time of the Autumn Statement or Budget. Pension taxation remains unfinished business and although the Treasury is guiding people that it will wait for this until next spring, officials have also laid false trails in the past. Otherwise, officials say the statement will mostly concentrate on spending not tax, so announcements of big infrastructure projects are likely.