The 2012 Autumn Statement

The Chancellor presented the 2012 Autumn Statement against a gloomy economic background. The economy has only recently emerged from a double dip recession and has contracted over the first nine months of 2012. The Chancellor has been forced to admit that reducing the deficit will take longer than originally thought.

The Autumn Statement included a wide range of policy decisions with significant cost or revenue implications for the Treasury. The package of measures as a whole was, however, fiscally neutral over the course of the Parliament. In other words, there was no net giveaway or takeaway.

On taxation, the Chancellor announced a further increase in the income tax personal allowance and a further cut in corporation tax. The increase in fuel duty planned for January was been cancelled. Further restrictions of pension tax relief were introduced.

On spending, many working age benefits will increase by only 1% for three years from 2013/14. There will be further cuts to government

departments’ resource budgets, with some areas of spending being protected. Capital spending will increase by over £ 5 billion.

As in last year’s Autumn Statement, the OBR has significantly downgraded its forecasts for economic growth. It now expects the economy to contract by 0.1% this year, compared with growth of 0.8% in its March forecast. Growth in 2013 and 2014 is expected to be 1.2% and 2.0%, down from March’s forecasts of 2.0% and 2.7%.

The deficit will continue to fall but more slowly than previously forecast. The statement showed lower borrowing in 2012/13 compared with 2011/12. This year’s figures are flattered by a number of special factors. Forecasts for public debt as a percentage of GDP have been revised

upwards.

The Government is on course to meet its borrowing rule but the OBR’s forecasts show the debt rule being breached. The Government has decided against any further spending cuts or tax rises which would allow the debt target to be achieved.