James Bevan: Autumn Statement “more political than economic”

The UK Autumn Statement kept the path of fiscal consolidation more or less unchanged.

The pace of fiscal tightening is due to ease slightly in the earlier years and quicken in the later years.

The 2015/16 deficit numbers increased to £73.5bn from £69.5bn in the Summer budget, but they are not directly comparable due to accounting changes.

The 2019/2029 surplus was slightly higher than before (£10.1bn vs £10bn) and 2020-2021 surplus also increased from 11.6bn to 14.7bn.

By bringing housing associations on to the public balance sheet and taking advantage of an  improvement in the outlook for tax receipts (mostly the new apprenticeship levy and larger rises in council tax), the Autumn Statement managed to increase the 2019/20 surplus vs. the Summer budget.

This was despite having to scrap the tax credit cuts. The impending squeeze on public services spending was also loosened. Real cuts on public services are more than a third smaller on average than those delivered over the last Parliament and around two thirds smaller than those pencilled in by the coalition back in March.

The Government has announced a net fiscal giveaway of £6.2bn next year, more than half of which is the cost of reversing the tax credit cut.

This outweighs a £2.9bn improvement in the underlying forecast in that year and thereby pushes up the deficit.

The giveaway is similar in 2017-18, before declining steadily to £2.2bn in 2019-20, by which point an £8.0bn increase in total departmental spending is largely offset by a £7.2bn net tax increase (mostly the new apprenticeship levy and larger rises in council tax).

The overall debt profile was also lowered due to higher tax receipts and lower debt interest rates.

The underlying economic forecasts have changed relatively little since the Summer budget.

The growth forecasts were revised up by 0.1pp for 2016 and 2017, reflecting both higher population growth and the Government’s decision to slow the pace of fiscal tightening.

Overall the Autumn Statement was more of a political than an economic event. What new news there was on the economic front was slightly positive, boosting growth at the margin, with the pace of fiscal tightening slightly easier in the near term.

It doesn’t change our assessment on the pace of monetary policy tightening in the UK.