On the basis that no-one reads articles that aren’t listicles these days, here are eight things you need to know about today’s Autumn Statement. The first four points are, one way or another, about the public finances. The remaining ones are about the wider economy. All charts are from HM Treasury’s official Autumn Statement documentation and the Office for Budget Responsibility’s Economic and Fiscal Outlook.
- We’re less than halfway there
According to the OBR: “Around 40 per cent of these cuts would have been delivered during this Parliament, with around 60 per cent to come during the next. The implied squeeze on local authority spending is similarly severe.”
2. The smallest public sector since 1938
A very striking chart from the OBR which puts the recent austerity plan into perspective. Based on this chart, which measures total government consumption, the public sector will soon have shrunk to the same size it was in 1938. According to the OBR:
The four successive year-on-year reductions in nominal government consumption during the next parliament — implied by the Government’s policy assumption for total spending beyond 2015–16 — would be the first since the Second World War. (Our fiscal forecast implies three successive year-on-year reductions in nominal government consumption, which would be the first time this has happened since 1948.)
In other words, we really haven’t seen an austerity programme that even resembles this in modern peacetime history.
3. We don’t know where all those cuts are coming from
While the Treasury has mapped out where the spending cuts will come from up to 2015/16, it has been far more vague about the more distant future. As you can see from the chart above, there is little clarity about which departments will bear what kinds of cuts after 2015/16. The table below shows the same story in numerical terms. The key line to look at here is the one that talks about “new Autumn Statement spending policy assumptions”. Those represent big envelope figures we don’t yet know much about.
[Update 09:45 Thurs] At the risk of overcooking it with the numbers, there’s also another OBR chart which attempts to illustrate how much of a hit the unprotected departments would take if these spending cuts did kick in. The answer is: a lot. Unprotected departments (eg any department except for Health, International Development and the schools) would see their budgets (in terms of real spending per head of the population) drop by 43% from where they are today. Or by 57% from their pre-austerity levels. Ouch.
4. The cuts are mainly hitting public services
This table shows you which parts of the public sector will have borne most of the cuts by the end of the austerity programme. The short answer is that the vast majority of cuts have come from public services, rather than welfare or capital spending.
5. House price inflation has peaked
The OBR forecasts that house prices will rise by a whopping 10.2% this year, before the rate of increase drops gradually over the following years.
6. Most of the growth is still coming from household spending
In his first Autumn Statement in 2010, George Osborne pledged to rebalance the economy ensuring that it would be less reliant on household spending and debt, and more reliant on exports in the future. However, the OBR’s forecasts suggest that net trade is still a net negative for the UK economy, and that most growth will continue to come from private consumption. That said, private investment is at least expected to provide more impetus in the coming years.
7. More debt. Much more debt
And it’s not just the Government which is indebted. The OBR’s new forecasts suggest that within four years Britain’s household debt to income levels will hit the same levels they reached before the crisis — 170% of income. And in the following years Britons will become even more indebted. As the OBR put it:
Meanwhile, residential investment grows strongly, leaving households’ finances in deficit and the gross debt to income ratio rising well above its pre-crisis peak by the forecast horizon. That seems consistent with supportive monetary policy and other interventions (such as Help to Buy), but it could pose risks to the sustainability of the recovery over the medium term.
8. Today’s measures represent a (very small) giveaway
You can tell as much by closely comparing the following two charts. The first shows you the net impact of all of the coalition’s fiscal plans up until the Budget six months ago:
The second (below) represents the same calculation taking into account today’s measures.
As you can see, each of the black diamonds, which represent the net impact on household income for each tenth of the population (by income) rises a little bit in the bottom chart. That implies that the measures introduced in the Autumn Statement will increase net incomes for each of these earning groups.
Importantly, the wealthiest are taking the biggest hit from the entirety of the Government’s policies. But even they benefit from the Autumn Statement, with their income change going from more than -2% to just under -2%.
