Reflections on the Autumn Statement 2013
by Ken Gibb
I am increasingly of the view that one needs to wait a few days after a major Budget statement. There has already been much written, showing how the wider world with its different perspectives interprets and deconstructs the Autumn Statement. It was a characteristically bullish and political performance and I think there are many things from it one would want to discuss further. I am going to focus on four specific aspects: macro questions of austerity, recovery and the deficit; the housing market; poverty and benefits; and, the fine city of Glasgow.
The macro highlights from the Chancellor’s perspective were of course about economic recovery and a positive austerity narrative. Several writers have been consistently critical of the wasteful impact of austerity on economic growth (Simon Wren-Lewis has been very persuasive). Today, there was an excellent post by John Cassidy in the New Yorker. Cassidy makes a number of trenchant points:
– Austerity meant three more years of recession-like economic conditions and this will continue to affect the UK for years to come.
– The UK has failed to meet its 2010 deficit reduction targets and has performed less well than the counterfactual growth projections established in 2010 by the OBR if there had not been the Coalition austerity programme.
– Research by Jorda and Taylor at California Davis suggests that 3/5 of the fall-off in economic activity was down to the austerity programme and this may be downward biased.
– Wren-Lewis argues that the average UK household is £3,500 worse off as a result of the first three years of the Coalition programme.
– The structural budget deficit has not fallen but actually risen and will still be higher than 2010 forecasts as far forward as 2014-15. The debt burden will not peak till 2015-16 (at 80% of GDP).
– The economy’s nascent upturn is an ‘old-fashioned attempt to ramp up the real estate market’.
And what of the housing market and housing policy? Jules Birch, Alex Marsh, Gavin Smart and others have already commented at length on the key points. We knew already that funding for lending was being switched to SMEs away from housing. AS13 also announced plans to tax future capital gains made by non-residents of residential property (but not till 2015 risking accelerated sales) and confirmed plans for the Bank to act to moderate asset bubbles (though it is still not clear how this is to be achieved in practice). The Treasury also plans to make technical changes to CGT private residence relief to reduce the incentive to exploit this by landlords.The Bank are to advise the Treasury as to whether the HTB scheme remains appropriate. The Government will make £1 billion of loans available to help ‘unblock’ large housing developments. This will fund infrastructure to achieve this over a 6 year period.
Councils had their borrowing limits for council building raised in England but this was not by as much as was asked for and at the same time the right to buy has been strengthened which will in time dilute supply – as will the order to sell off expensive council housing assets.
A feature of the AS13 was the announcement of an overall welfare cap (along with sundry commitments to see that it is enforced in the future). It quickly became clear that this cap only applied to that part of the social security system that was not to do with pensions and ‘most cyclical’ elements of welfare (e.g. JSA and JSA-passported elements of Housing Benefit). Nonetheless, more than £100 billion of welfare benefits annually will fall into the scope of the cap.
All of this when the Joseph Rowntree Foundation ‘s annual Monitoring Poverty and Social Exclusion Report tells us that 52% of people living in poverty are in families where there are people working. The combination of buyer power in the labour market, non-traditional contracts, low wages and a consequent dependence on in-work benefits – shows just how misleading the benefit reform focus on work incentives into work really has become.
Finally, amidst the other details on the basic pension age, higher education fees and the many other issues highlighted, in Scotland, we noted that Glasgow is to have its municipal vision for a City Deal supported by the UK Government (with support from the Scottish Government – as some of the necessary levers are devolved). Glasgow may yet be a model or demonstrator for the delivery of City Deals to other parts of the devolved UK in time to come.
Alongside the Future Cities Demonstrator, these are exciting times and opportunities for the City and its infrastructure. Glasgow already has a major regeneration programme through the Clyde Gateway initiative, the fruits of the completion of the motorway network and the projects associated with the Commonwealth Games. Whether this will make Glasgow ‘one of the fastest growing city regions in the UK’ remains to be seen. However, it is overall an opportunity for Glasgow to both modernise and recover some of the lost ground caused by the recession on jobs across the Clydeside conurbation. It is also clearly time to investigate the English City Deals and their lessons much more closely.