In his speech, George Osborne said:
"Much of Europe now appears to be heading into a recession caused by a chronic lack of confidence in the ability of countries to deal with their debts.
"We will do whatever it takes to protect Britain from this debt storm, while doing all we can to build the foundations of future growth."
The Chancellor then adds:
"But if the rest of Europe heads into recession, it may prove hard to avoid one here in the UK.
"We are now undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis."
He also announced permanent reductions in spending to ensure that the UK meets its fiscal targets, using some of those savings in the short term to fund infrastructure investment to generate long-term growth.
Alongside this, he announced measures to help households and businesses cope with higher inflation and to ensure that deficit reduction is implemented fairly.
Protecting the economy
As result of the ongoing impact of the financial crisis, the euro area crisis, and commodity shock, the OBR expect slower growth and higher borrowing in each year of their forecast.
In order to ensure it continues to meet its fiscal targets, the Government will:
- set plans for public spending in 2015-16 and 2016-17 in line with spending reductions over the Spending Review 2010 period
- set public sector pay awards at an average of 1 per cent for each of the two years after the current pay freeze comes to an end - Departmental budgets will be adjusted in line with the policy, with the exception of the Health and schools budgets, where savings will be recycled
- adjust the allocation of Official Development Assistance in line with the OBR's revised growth forecast, meeting the 0.7% of GNI target in 2013
- raise the State Pension age to 67 between April 2026 and April 2028
- not increase the child element of the Child Tax Credit by more than inflation, and not up-rate the couple and lone parent elements of the Working Tax Credit by inflation next year
To complement the Bank of England's active monetary policy, the Government will launch a package of up to £21 billion to ease the flow of credit to smaller and mid-sized businesses, including:
- up to £20 billion through the National Loan Guarantee Scheme to lower the cost of bank loans for smaller businesses
- an initial £1 billion Business Finance Partnership, which will lend to mid-sized businesses and SMEs in the UK through non-bank channels
Building a stronger economy for the future
Building on the first phase of the Growth Review, the Government is taking action to accelerate its supply side reforms to invest in infrastructure, support enterprise and lay the foundations for strong, balanced growth, including:
- £6.3 billion of additional infrastructure spending over the Spending Review period, of which £1.3 billion was announced earlier in the autumn.
This includes:
- investing over £1 billion to tackle areas of congestion and improve the national road network
- committing £170 million of extra funding to allow more local transport projects to go ahead
- investing £100 million to create "super-connected" cities across the UK, with 80-100 megabits per second broadband and city-wide high-speed mobile connectivity
- increasing the Regional Growth Fund by £1 billion
- £600 million of funding for an estimated 100 additional Free Schools, alongside an extra £600 million for Local Authorities with the greatest pressure on school places in England
- around £1 billion of new private sector investment in regulated industries supported by government guarantee
- commitments to £5 billion of capital projects in the next Spending Review as part of the National Infrastructure Plan
- targeting up to £20 billion of private sector investment in infrastructure through a memorandum of understanding with two groups of UK pension funds and establishing the Infrastructure Investors Forum with the Association of British Insurers
- a new Seed Enterprise Investment Scheme (SEIS) from April 2012
- 100 per cent capital allowances in Sheffield, the Black Country, Liverpool, Tees Valley, North Eastern and Humber Enterprise Zones
- a new build indemnity scheme for builders and lenders to the stimulate the construction of new homes
Fairness
Fairness underpins the Government's plan to protect, rebalance and strengthen the economy.
To ensure that the deficit reduction is implemented fairly, provide further support for families and businesses with high inflation, and support young people in the labour market, the Government will:
- defer the 3.02ppl fuel duty increase due to take effect on 1 January 2012 to 1 August 2012; the second increase planned for 1 August 2012 will be cancelled
- increase the bank levy to 0.088 per cent from 1 January 2012, consistent with the Government's intention that it raises at least £21/2 billion each year, as set out at Budget 2011
- ensure employers making asset-backed pension contributions do not receive unintended excess tax relief
- proceed with the extension of Air Passenger Duty (APD) to flights aboard business jets, effective from April 2013 - details will be set out in the Government's response to the APD consultation on 6 December 2011
- introduce a Youth Contract worth a total of £940 million over the Spending Review period to provide wage incentives for small firms to take on young apprentices and employees
- provide extra support for 18-24 year olds through Jobcentre Plus, and an offer of Work Experience or a Sector Based Work Academy for those on Jobseeker's allowance for over three months
- fund a new £50 million a year programme to support some of our most disadvantaged 16-17 year olds into education, an Apprenticeship or a job with training
- invest a further £380 million a year by 2014-15 extending to 130,000 more disadvantaged two year olds the offer of 15 hours free education and care a week
Grenville Turner, Chief Executive of Countrywide, said;
“At a time where deposit affordability remains a significant barrier to not only first time buyers, it is disappointing that the Chancellor did not take the opportunity to extend the Stamp Duty holiday for first-time buyers and has instead added another barrier for first-time buyers to get onto the property ladder.
"A positive antidote to assist the vast majority of homemovers and the resale market would have been a Stamp Duty holiday for all homebuyers up to £250,000
“Whilst the measures announced in the Government’s housing strategy are a step in the right direction, they only scratch the surface of the fundamental issues that have restricted the housing market in recent years– housing supply and the high level of deposits required.
"The prediction that 100,000 families will benefit from the Mortgage Indemnity Scheme may be optimistic, as were yet to hear the detail of whether it enables lenders to offer cheaper rates.”
Charles Haresnape, MD of Aldermore residential Mortgages said:
"The government backed mortgage indemnity scheme and re-invigoration of the right-to-buy scheme clearly demonstrate that it understands the importance of breathing new life into the housing market.
"It is therefore surprising that nothing was said in today's statement about maintaining the current stamp duty threshold beyond March 2012.
"First time buyers need as much help as possible and the re-introduction of stamp duty on purchases below £250,000 will be a significant disincentive."
Kevin Mountford, head of banking at MoneySupermarket.com said:
"At a time when UK consumers have seen living costs rise significantly, the decision by Rt. Hon George Osborne to stop the planned rise in fuel duty next January will be welcomed by many households.
"However, a recent survey of over 10,000 MoneySupermarket site users showed that 88 per cent wanted a reduction in duty to ease the pressure on their wallets, so many consumers wanted the Chancellor to go further than he has done to help hard pressed households.
"Although there were some positive elements to the announcement to help stimulate growth in the economy, it is still clear that there is a winter of austerity ahead before the green shoots of recovery begin to sprout.
"Until then, households have to take control of their finances and become their own ‘Chancellor' by reviewing their household budget, to get through the tough times ahead.
"Looking at all outgoings and shopping around for the best products for their individual needs is a great way that people can give their finances a boost.
"There are significant savings to be had by looking to switch across household spending including utilities, loans and credit cards.
"Many people may be paying far more than they need to for their household bills and the savings can literally add up to hundreds of pounds over the course of the year.
"Inefficient spending could mean the difference between families falling into financial hardship or keeping their heads above water."
Peter Rollings, CEO of estate agent Marsh & Parsons, comments:
“The failure to extend the holiday for first-time buyers will undermine the government’s own attempts to kick-start the first-time buyer market across the country.
"While the new mortgage indemnity scheme may improve the accessibility of mortgage finance to many credit-worthy borrowers, first-time buyers will need to save for longer to pay the stamp duty bill as they move.
"If the government aimed to stimulate the national first-time buyer market in spite of the wider economic conditions, combining the extension of the stamp duty holiday with the new indemnity scheme would have boosted the chances of a significant increase in first-time buyer activity.
"In effect, Osborne is giving with one hand, and taking away with the other.”
“But the Chancellor has also missed an open goal by failing to address the outdated and iniquitous stamp duty tax system. As things stand, stamp duty is a regional tax rather than a national progressive tax, and buyers in London and the South East must bear the financial brunt of the tax for the simple reason that house prices are higher.
"This will remain the case for as long as the duty doesn’t take into account the fact that house prices are not uniform across the country. The housing market plays a vital role in supporting the UK’s economic growth, and a more equal and progressive tax system - alleviating the pressure on the lower tier of the market across the whole country – would create a busier market.
"In turn, a healthy housing market would feed the wider economy, boosting demand for supporting industries and creating opportunities for builders, electricians, kitchen manufacturers and plumbers to name but a few.”
Mark Jones, LV= head of protection, comments:
"Parents are all too aware that having a child comes with a hefty bill, especially when looking at the cost of childcare.LV='s Cost of a Child report shows that on average childcare costs add up to £67,430 per child, with the greatest proportion of those arising when the child is aged between one and four years old (£46,037).
"The Government scheme to provide 40% of the UK's two-year olds with 15 hours of free childcare a week will be a welcome benefit for the families struggling most to meet the high costs of childcare.
"LV='s annual Cost of a Child report showed that childcare makes up almost a third (32%) of the total cost of raising a child from birth to 21 years old (currently £210,848).
"It's important when balancing the family budget that we look at bigger picture, and keep in mind the impact of short-term cost cutting measures, and how the family would continue to cope financially if a parent were suddenly unable to work."
Andrew Tully, Pensions Technical Director at MGM Advantage said:
"In times of rising longevity, it seems right the Government has taken this action. Giving 15 years' notice should give people sufficient time to prepare. It's likely the increase to age 68 will also come sooner than the planned 2046."
Simon Rubinsohn, RICS Chief Economist said:
"Today's figures from the OBR are predictably disappointing and serve to emphasise how desperately the Government needs a positive strategy that delivers sustainable growth quickly to the UK economy.
"The recognition that infrastructure development and the construction industry are the key drivers of this much needed growth is a good start but will only deliver in the medium term. More immediate measures are needed to kick start the economy now.
"It is essential that Government and investors understand the specialist expertise that small surveying businesses can offer these infrastructure projects.
"Ensuring that small businesses are able to bid competitively for this work will benefit both the project itself and the wider economy.
"Efficient, effective and sustainable procurement and delivery, throughout the whole life cycle of the project will also be vital. RICS standards and member expertise are central to this process.
"It is sensible to seek to leverage institutional investment in infrastructure and countries such as Canada and Australia are good examples of how this can be done.
"But care needs to be taken to ensure that investors have the right knowledge and the right vehicles at their disposal to make the right investment decisions for UK Plc.
"The planning system will also need to adapt to provide the certainty that these investors need."
BBA chief executive Angela Knight said:
"This Autumn Statement makes a serious addition to the large sums already being lent to the business community by the banks.
"With the eurozone crisis putting lack of confidence at the top of the list of concerns in every comprehensive survey of business, this Statement makes it clear that money is available for viable businesses."
On credit easing
"This initiative give business what they seek by making more finance available and providing a wider choice of options. They use the Government's positive credit rating to make the finance cheaper.
"The banks will play their part in making this happen - over and above the increased lending that is taking place and the other commitments the industry has made both to business and Government.
"Businesses are currently borrowing around £664 billion from the UK's high street banks. Independent research has found that the main disincentive to borrowing is continuing concern about the economy.
"The times are uncertain and the more confidence that can be given about the supply of credit the better."
On restoring business confidence
"One of the consequences of the ongoing criticism of the banks has been that small businesses have been discouraged from applying to them for credit. Restoring confidence in the lending process has therefore become increasingly important.
"In the past few months alone, the banks have created and financed a UK-wide network of 11,000 business mentors, an independently-monitored appeals process, a £2.5bn Business Growth Fund for equity investment in growing businesses and conducted 17 roadshows where representatives of more than 2,000 businesses have gathered to meet with bank executives.
"The banks are also working with Community Development Finance Associations to provide essential finance for higher-risk start-ups.
"Together with today's announcements from the Government to support businesses, these initiatives should provide companies of all sizes with the assurance and confidence to borrow for growth."
On the bank levy
"The banks are committed to playing their part in restoring the public finances through the many different taxes they pay. But a stable tax regime is important: banks of all nationalities do business around the world from here and they pay tax here. Certainty is an important requirement."
Karen Barrett, Chief Executive, unbiased.co.uk, comments:
"The freeze on January's planned fuel duty rise, announced in the Chancellor's autumn statement today, will be a small relief to consumers and those motorists who rely heavily on their car to earn their living.
"Earlier this year our consumer research showed that fuel duty was the number one tax consumers wanted to abolish, with 20% of people stating that this was the tax that they wanted to be rid of the most.
"The Chancellor's decision to scrap the duty rise may not be a dramatic change, but it will go some way to helping the burden on people's everyday living costs."
Michelle Mitchell, Charity Director for Age UK said:
On raising the State Pension Age
"The decision to speed up the timetable to increase the State Pension Age to 67 will come as a bitter blow to many people fast approaching retirement especially those in ill-health, caring for relatives and those out of work.
"Age UK recognises that as life expectancy increases it is reasonable to consider increases to State Pension age and longer working lives, however this decision has been based on no published detailed analysis.
"Average life expectancy must not be the only factor that is considered as at the moment the huge disparities in healthy life expectancy across the country means that the poorest socio-economic groups will be required to sacrifice proportionately more of their retirement.
"Age UK is calling for an Independent Pensions Advisory Commission to be set up to ensure pensions decisions are based on all the relevant factors including inequalities in life expectancy, employment opportunities, trends in private provision and prospects for older workers.
"This week the Government has announced an increase in State Pension age and a delay in auto-enrolment for some people rather than looking at retirement provision in the whole.
"Any changes in State Pension age should be made in the context of a strategy to improve health inequalities, a timetable for the reduction and abolition of pensioner poverty and a strategy for achieving this, a firm commitment to private pension reform and improvement to state pensions."
On Consumer Price Index on the Basic State Pension and Pension Credit
"We welcome the Government's decision to maintain its commitment to increase the basic state pension by the triple guarantee so that it will rise by 5.2% in line with September's CPI.
"This will mean an extra £5.30 a week in pensioners' pockets which will help towards meeting the rising costs of living.
"We also welcome the Government's decision to increase the standard amount of Pension Credit by the same amount. However this cost will be met through reductions in savings credit provided to pensioners with slightly higher incomes."
On the Government's review of Employment Legislation:
"We will be examining the Government's review very carefully to ensure that the overall package does not allow employers to force older workers out of the workplace or be used as a backdoor way to reintroduce forced retirement which the government has only just abolished as discriminatory."
Murray Rowden, of Turner & Townsend, commented:
"Few will argue with the chancellor's ambition to overhaul some of the country's most crucial infrastructure. The section of his speech where he confirmed the list of 35 road and rail schemes singled out for investment was notable for its lack of boos.
"Investing in infrastructure is an investment in Britain's future growth, and the right project will generate both wealth and jobs in its own right. Mr Osborne said he has accounted "pound for pound" for all of the £5 billion of public money due to be injected into infrastructure building over the next three years
"But if the government is to find the extra funds needed to meet the vast capital cost involved, it will need to perform a twin feat - of both creativity and persuasion.
"PFI, once the darling of the Labour government, is now the funding model which dare not speak its name. So in its stead the government is proposing to use private pension funds as a source of long-term funding.
"It's a logical and tested way of keeping much of the cost off the government's balance sheet - and getting a significant chunk of the money up front.nAnd it should be an easy sell too. From the pension funds' perspective, the right projects can be very appealing - as they provide a long-term, steady income stream and low risk.
"But the smaller projects will provide a tougher challenge, as investors in these will often want to see quicker returns in return for higher risk. The most likely source of this sort of funding will be a retooled version of PFI.
"Despite its tarnished image and reputation for hidden cost, the PFI model can be an effective one. Our experience shows that it's still popular in several other countries - especially Canada.
"Successive UK governments have found its ability to allow investment without driving up public debt levels to be irresistible.
"It will be given a rework and a rebrand of course - perhaps along the lines of the "not for profit" model being mooted by the Scottish Government.
"But if the chancellor is to come close to delivering this ambitious list of infrastructure projects, he cannot count on the pension funds to provide all the investment needed. He will inevitably be seduced, like his predecessors, by the siren song of PFI."
Tony Bernstein, tax partner, HW Fisher & Company, commented:
"The stand-out tax announcement in what was a deeply pro-business August Statement was the launch of the Seed Enterprise Investment Scheme.
"Adding the CGT waiver to a 50% income tax relief will mean up to 78% tax relief for investments into qualifying businesses of £100,000 or less. This is a significant tax give-away and will provide a strong incentive for investment into the UK's high growth start-ups.
"With its strong macro focus, this Autumn Statement contrasted sharply with the finer tax focus of the previous Government's pre-Budget Reports.
"The extension of the R&D tax credit is to be welcomed, although whether the rules will be accessible remains to be seen. On the downside, a postponement of the state pension age increases the period for which national insurance contributions will be paid by employees."
Andrew Smith, chief economist, at KPMG in the UK, said:
“The Chancellor blamed international developments for undermining the recovery and the deficit reduction plan, but that is hardly the whole story. UK output has been broadly flat since as long ago as last autumn and the shortfall from March’s forecast for growth this year is largely accounted for by undershooting consumption, not export weakness.
“Even after the significant downgrading of the OBR forecast, the risks to the growth outlook remain heavily on the downside. The squeeze on real incomes may ease somewhat if inflation falls sharply next year, but rising unemployment is providing a reason for households to save rather than spend; export markets are weak, also reducing the incentive to invest; and confidence generally is unlikely to recover as long as the sword of Damocles hangs over Europe.
“The economy and the budget deficit are clearly interlinked, but has the Chancellor got the relationship right? Mr Osborne is betting that austerity will restore the government finances and spontaneously rekindle growth, but the risk is that a contractionary fiscal stance at a time when other areas of demand are weak will tip the economy into a vicious downward spiral.
“The supply-side initiatives are welcome but almost by definition take a long time to have an effect, when what the economy needs is a demand boost now. As a rule of thumb, the lower the cost of fiscal measures the less effective they are likely to be – and the Chancellor’s self-imposed mandate has prevented him from spending any net new money at all.
“In short, this was not the sort of “mini-budget” you would have expected when the economy is teetering on the verge of recession. With fiscal stimulus ruled out, the Chancellor is relying on monetary policy to support demand. Over to you, Mervyn."
David Whittaker, managing director of Mortgages For Business, said:
“Despite the underwriting of loans for first time buyers, the boost for house building and the revitalisation of the Right to Buy scheme, we cannot escape the fact that the private rental sector will be the safety net of the housing market for the next few years.
"Lending volumes for owner occupiers will continue to be subdued as high living costs and low interest rates prevent thousands from getting a foot on the first rung of the housing ladder and the 100,000 young people and families the government hopes to help with the latest scheme are but a fraction of those who need a roof over their heads.
"Landlords and property investors are essential in helping plug the housing shortfall the UK is currently suffering but the government has chosen to ignore this fact and has done nothing to help this vital element of the housing market.”
Wendy Evans-Scott, President of the National Association of Estate Agents, said:
“We were disappointed to see that the first time buyer holiday for Stamp Duty Land Tax is not being extended beyond March 2012. As such, today’s Autumn Statement fails to provide much comfort to the property market.
"First time buyers are the lifeblood of the property market, and our recent data shows the number of first time buyers getting on to the housing ladder has reached a three-year low. With the stamp duty holiday disappearing from next March, the Government will need to do more to help the fragile first time buyer market.”
