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Autumn Statement – Macro view

Even more so than usual, this Autumn Statement was a highly politicised affair as all parties start to position themselves for election campaigning next year. Many have also pointed out this is likely to be the last high-profile Treasury event as a functioning coalition, with any pretence of camaraderie between the Tories and Lib Dems likely to be long since gone by the time of the Budget, which is usually in March. Against this backdrop, the Chancellor had precious little room for manoeuvre, with the only real big-ticket measure being stamp duty reform, which becomes a progressive tax – similar to the way Income Tax works – and banded such that 98% of home buyers will be better off.

Still, there were reasons for the Chancellor to be upbeat, as economic forecasts were overall positive, which will no doubt play to the Conservative party’s advantage as it looks to bolster its economic credentials heading into the election. GDP growth figures were revised upwards, now expected to come in at 3.0% for this year and 2.4% next, with a strong employment outlook and subdued inflation. The fly in the ointment is that the Government deficit is likely to be higher than forecast for the next two years, though it falls faster than previously forecast after that, with the deficit set to be eliminated in 2018-19. The apparent conflict between stronger growth but worse deficit comes down to weaker tax receipts. This was widely expected given the recent increases in the personal allowance and reduced revenue from North Sea operations as the oil price has fallen, but the Chancellor believes these were mitigated thanks to lower debt servicing costs as Government bond yields have fallen. Either way, this limited the scope for more radical (and possibly vote-winning) changes. Supportive measures largely focused on additional help for small businesses, promoting growth in the north of England and boosting scientific endeavour. To balance these, the Government took aim at some political bogeymen namely limiting the ability of banks to offset financial crisis losses against profits for tax reasons and forcing multinationals that artificially divert UK-generated profits to pay 25% corporation tax, which a lot of people are calling a ‘Google-tax’.

As expected, with limited ability to push through major changes, and with an eye now firmly on the May elections, there was considerably more politics than economics in this Autumn Statement. That said, what we did hear could easily be taken as a positive – no meddling, and a basic message that the UK continues to be the fastest-growing developed economy, with strong employment and low inflation. Not a terrible position be in.

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