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Autumn Statement Preview

11.11.2013

Always eager to appear a man of his times, Chancellor George Osborne took to Twitter to announce this year’s Autumn Statement.

Can confirm that autumn statement will be on Dec 4th. That’s when we’ll set out next steps in plan to secure the economic recovery #AS2013

His tweet was followed swiftly by another on Monday, November 11th detailing that he will now deliver the statement on Thursday 5th December to allow David Cameron time to return from a trade mission.

The PM is visiting China in early Dec to strengthen economic ties so I will deliver the Autumn Statement on Thurs 5th December #AS2013

So, Thursday December 5th it will be. The question is; what can we expect from the Chancellor?

The British economy is clearly improving: in March the Office for Budget Responsibility (OBR) predicted that the economy would grow by 0.6% this year. Since then growth has been faster than expected and economists now expect to see expansion of 1.4% in 2013 and 2.2% the following year.

Despite this, it is very unlikely that the Autumn Statement will see either tax cuts or increases in spending. The Chancellor gave a clear indication of his intentions in a statement at the IMF meeting in Washington:

“I just want to remind everyone that I still sit down at the table at the G20 with one of the highest budget deficits.

“Britain still continues to have some very serious public finance challenges that need to be addressed. Although we’ve brought down the deficit by a third, it is still too high. We’ve got to make sure that we are doing what we can to reduce our deficits and debts”.

So despite the recovery, it seems certain the Chancellor will continue to tackle the budget deficit. His original plan was to finish his deficit-cutting programme by 2015, but this had to be abandoned as the economic slowdown meant that tax receipts were lower than expected. The clear indication is that the Chancellor will carry on squeezing welfare and government spending to meet his new fiscal targets.

This means that calls from the British Chambers of Commerce and the IMF to increase spending on infrastructure are likely to receive a cool reception. The website ‘Conservative Home’ gave a clear indication of the Chancellor’s thinking, suggesting tax cuts will be deferred until closer to 2015, ‘either in case the public finances weaken again, or to maximise the electoral gain.’

It seems likely that the Chancellor will deliver a ‘we’re on course but we can’t be deflected’ speech when he stands up on December 5th. He may however, begin the process of positioning the Conservative Party for the next election, which must be held by May 2015, so there may well be additional measures announced regarding tax breaks for married couples. He will also defend his controversial ‘help to buy’ scheme, in the face of many economists’ misgivings, and evidence that the housing market is starting to rise significantly in some areas.

Fears of a bubble in the property market – especially in London – together with the promptings of several newspapers may well see the Chancellor introduce measures to impose Capital Gains Tax (CGT) on foreign property owners. UK residents currently pay CGT at 18% for a basic rate taxpayer and 28% for a higher rate taxpayer. Non-residents are exempt from paying CGT, which allows then to buy and sell property without paying tax on any gains. Business Secretary Vince Cable has described this as an “extraordinary anomaly.”

So far George Osborne has been non-committal on his plans but introducing such a tax will be hard to resist. It’s a one-off chance to raise revenue without upsetting any potential voters.

All in all, therefore, we are likely to see a ‘steady as she goes’ approach to the Autumn Statement, with plenty of statistics about how much the budget deficit has been reduced, but an equal number of dire warnings about what will happen if the Chancellor relaxes his grip. The speechwriters are no doubt already working on phrases such as ‘much has been achieved but much remains to be done.’

We will be working equally hard on bringing you all the important points from the Chancellor’s statement following the announcement.

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