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Published: Wednesday 3rd December 2014 by The News Editor
George Osborne will appeal today for voters to let him finish the job of overhauling the economy, despite rising borrowing and the prospect of more painful spending cuts.
In his final Autumn Statement before the general election, the Chancellor is expected to be able to boast that UK plc is creating jobs and growing faster than any other G7 power.
But the latest forecasts are also likely to indicate that the Government’s deficit could actually rise this year amid stalling tax receipts. Instead of balancing the books by the end of the parliament as he originally promised, experts believe the gap between income and outgoings is on track to be more than £90 billion.
The figures will set the stage for a high-stakes political showdown between Mr Osborne and Labour counterpart Ed Balls, who will seek to regain the initiative on the economy by claiming the recovery is only benefiting the wealthy.
Tory big beast Ken Clarke has risked providing the shadow chancellor with more ammunition by conceding Britain would now be in a “bad way” if the coalition had pushed ahead “full steam” with deficit reduction.
He also appeared to question whether Mr Osborne would be able to hit the new target of achieving balance by 2017-18 and said the Conservatives should not “shut out” the prospect of tax rises.
Among the measures expected to be announced in the Autumn Statement are:
:: Funding and guarantees to unlock around £1 billion in investment for small and medium sized businesses, and an extension of the Funding for Lending scheme specifically focusing on smaller firms;
:: A review of business rates to remove ‘roadblocks’ to growth;
:: Plans for the Government to directly commission housebuilding on public land for the first time in more than 40 years;
:: Using fines paid by banks for manipulating Libor to help Ghurka veterans;
Ministers have already heavily trailed a multi-billion pound infrastructure drive – including a tunnel under Stonehenge and bolstering flooding defences. Mr Osborne has also indicated that £2.5 billion will be allocated to ease pressure on the NHS, although there are disputes over how much is new money.
But the wider fiscal position could overshadow much of the detail in Mr Osborne’s package. Experts believe the independent Office for Budget Responsibility (OBR) will raise its prediction for UK growth this year to over 3%, from 2.7%.
But revenues from tax revenues have been running below forecasts, with speculation that many of the new jobs being generated are low paid or part time, and a slowdown in the housing market hitting stamp duty income.
Public Sector Net Borrowing (PSNB) for this year could be revised to £95 billion, although there are suggestions that a bumper season for self-assessment tax returns in the New Year could recover some of the lost ground. In 2010 the OBR predicted it would be running at around £40 billion by now.
Mr Osborne is bound to face questions from both the political right and left about whether he can meet promises to eradicate the deficit by 2018 – and deliver billions of pounds worth of tax cuts by 2020.
Both he and David Cameron have come under fire for playing down the scale of the public spending cuts needed after the election – with respected think tank the Institute for Fiscal Studies (IFS) suggesting the fiscal consolidation is only halfway to completion.
Liberal Democrat Chief Secretary to the Treasury Danny Alexander yesterday argued that the further tightening required would be “smallish”. However, while Mr Osborne has said he wants to eradicate the rest of the deficit through spending curbs alone, the Lib Dems have made clear they would push for tax rises to take some of the strain.
Former chancellor Mr Clarke told the BBC’s Newsnight that the Government’s original plan of eradicating the deficit by May 2015 would have left the country “in a bad way”.
“We had a target of getting rid of the deficit in this parliament. I actually think that although it perhaps wasn’t entirely planned it was very sensible that we didn’t do it that quickly,” Mr Clarke said.
“Had we tried … getting rid of the whole deficit, ‘let’s charge ahead’, we would not be in the state we are. We would be in a bad way.”
Mr Clarke, who recently stepped down from the Cabinet, said the 2017-18 deadline was a “legitimate target” but should not be immovable.
“I would aim to do it, get rid of the deficit by 2017-18. We should try to hit it but we should not be oblivious to the fact that nobody knows what the state of the world economy is going to be in 2017-18,” he said.
Amid Labour accusations that Mr Osborne is plotting to increase VAT again, Mr Clarke also insisted he “wouldn’t shut out” the possiblity of tax rises.
“Has George really ruled out any kind of tax rises? I wouldn’t personally if I were him burn my boats on that,” he said.
“I would very much like to avoid tax rises, because it’s actually advantageous to growth at the moment. “Taxes sometimes go up, sometimes go down. It’s reacting to the reality and events. George is good at that.”
Mr Clarke said the current levels of public spending would have been regarded as “ridiculous” in past decades.
“I think the totality of public spending, I think we’re down to 2003 aren’t we? We’re not down to the levels I was used to,” he said. “We’re spending sums of money that I would have told you were ridiculous not too many years before that.”
Mr Balls said: “David Cameron and George Osborne have now failed every test and broken every promise they made on the economy.
“They promised living standards would rise, but while millionaires have got a huge tax cut working people are £1,600 a year worse off under the Tories.
“This cost-of-living crisis is why the Chancellor will have to admit he has broken his promise to balance the books by next year.”
Published: Wednesday 3rd December 2014 by The News Editor