THE Chancellor of the Exchequer announced his assessment of the British economy in the House of Commons this week.
In what is called the Autumn Statement, George Osborne set out his view as to the prospects for our economy, as well as updates regarding what he will need to do about public expenditure and borrowing.
It is usually an update to Parliament following the annual budget, which takes place in the spring.
This year, given the difficult economic conditions, this week’s Autumn Statement took on a more major role than is normally the case.
I’ve read the Autumn Statement and was in the Chamber of the House of Commons when the Chancellor made his Autumn Statement and, frankly, it’s bleak.
The health of the British economy has worsened over the last year, and economic prospects and associated public finances have sharply deteriorated over the past six months.
The Chancellor’s top economic priority since he came to the job 18 months ago has been – rightly or wrongly – to sharply cut the public deficit.
He had an aim to cut the entire public deficit by the end of this Parliament, or 2015. He will fail to do this.
The Autumn Statement states that he has revised this target back two years to 2017, but in the meantime, he will borrow an astonishing £158 billion more over this period than he forecast he would even just a year ago.
In many respects, the fact that the Chancellor has failed to meet his target is not surprising. By raising taxes like VAT to 20 per cent, cutting household incomes and taking demand out of the economy, he has added significantly to the problems of slow economic growth.
Economic growth forecasts are sharply down for this year, next year and the year after: the independent Office for Budget Responsibility has cut these figures from 1.7 per cent growth this year to 0.9 per cent, and from 2.5 per cent in 2012 to 0.7 per cent.
An economy that is not growing or adding to employment numbers usually has to borrow more, and that is what is happening to the Chancellor’s figures.
The government is taking in less tax receipts like income and corporation tax, because there is less activity in the economy, and paying out more in unemployment benefit.
This is certainly the case with the Autumn Statement: unemployment is forecast to rise until 2014, with the OBR forecasting an increase of 300,000 people on the dole from its original projection just six months ago.
The North-East and hard-working families will bear the brunt of this, especially if you work in the public sector. The number of redundancies in the public sector are forecast to rise from 400,000 to 710,000, which will hit our region hard. For those public sector workers that still have a job, pay increases will be held at one per cent for the next couple of years.
It’s not just public sector workers. The accompanying documents that were published alongside the Autumn Statement showed that the lowest paid workers – those who do the right thing, go out and work for often low pay but who may be helped by a top up of tax credits, will be the hardest hit group of people as a result of these measures. Some elements of tax credits are to be frozen or cancelled altogether, meaning that, on top of rising energy and fuel bills, life will be tougher.
The Autumn Statement was pitched in the media as one for infrastructure, but the North East fares very badly in this regard. Only two projects were mentioned for our region: the Tees Freight Terminal, which, if memory serves me right, has been announced before, and the electrification of the Transpennine Express, which will tend to benefit Yorkshire and the North West more than it benefits us.
The North South divide, which sees our region’s ability to compete with other regions made difficult, has grown wider with these announcements.
I’m sure I have depressed you as you might be reading this over a cup of tea. I was depressed myself as I read the figures on Tuesday afternoon.
It’s genuinely difficult to see any silver linings in these documents and figures. The deteriorating public finances are a result in part of the refusal to concentrate on economic growth and jobs.
For the sake of the public finances and the wider British economy in the long term, the Chancellor really needs to think again before the Budget.