George Osborne, the UK chancellor, on Wednesday presented the Autumn Statement on the government's fiscal plans to the House of Commons and he had been delivered two unexpected gifts to take the sting from what would typically have been dubbed a "humiliating climbdown" or "U-turn" by the Opposition and political commentators:

 

1) The independent Office for Budget Responsibility (OBR) forecast before any changes, an unexpected cumulative reduction in net borrowing of £27bn up to 2020-21 compared with summer forecasts, due to a jump in tax receipts 2) John McDonnell, the Labour shadow chancellor, quoted from Mao Zedong’s Little Red Book — a popular 1960s appendage of well-off student revolutionaries in the West at a time when the Chinese Communist leader was engaged in a Cultural Revolution that brought chaos to the country. McDonnell flung his copy of Mao's quotations across the Table of the House, literally handing Osborne an opportunity to make a joke at his expense (see video clip below).

George Osborne did a huge U-turn on his announcement last July that he would phase out tax credits that Gordon Brown, a Labour predecessor, had used to support low-income workers. The reversal of the planned cuts to tax credits will cost £9.4bn over the five years of the forecast. Osborne made no fudge or excuses — Margaret Thatcher's experience in the Heath government of 1970-74 made her determined to avoid policy reversals. "To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say, you turn if you want to. The lady's not for turning," she told the Conservative Party conference in 1980.

Reversing tax credits cuts will bring welcome relief for millions of families who were set to lose an average of £1,300 next year. But most of the losses have been delayed rather than scrapped, leaving millions of working families significantly worse off by the end of the parliament, the Resolution Foundation think-tank said in a comment on the spending and taxing plans. It said that combined changes to welfare and departmental budgets mean that a record 42.3% of state spending is set to be directed towards older people and healthcare by the end of the parliament.

By pressing ahead with planned cuts to Universal Credit (UC) the outcomes will be broadly unchanged by 2020. This will lead to losses for millions of households, and permanently reduce the return for working among families on UC. RF analysis shows that by 2020 more than 3m households are still set to lose an average of £1,000 from the £3.5bn cut to UC. But the losses could be significantly larger for some families.

The OBR has revised up its forecasts for UK gross domestic product (GDP) to 2.4% for 2016 but left it unchanged at 2.4% for 2015. Over the following four years, GDP growth is forecast at 2.5% for 2017; 2.4% for 2018; 2.3% in 2019 and 2020.

The chancellor plans an overall fiscal surplus of £10bn (0.5% of GDP) in 2019-20 when real net departmental spending will be down £10.4bn compared with 2014/15.

On Wednesday he proposed a cut of £1.7bn in existing taxes, mainly through business rates relief. However, he is targeting a rise of £28.5bn in taxes — the apprenticeship levy on business (£11.6bn), higher council tax (£6.2bn) and higher stamp duty on second homes and buy-to-lets (£3.8bn).

Reuters says that the UK deficit was 5.7% of GDP in the 2014 calendar year, almost one-and-a-half times higher than France while the UK's structural budget deficit (excluding debt interest costs) was 5.2% of potential GDP last year, almost double French levels, according to the European Commission.

The deficit forecasts for this fiscal year and the next are at 3.9% and 2.5% respectively. 

Osborne, UK spending, taxes, 2020

The FT’s UK news editor Michael Stott discusses UK chancellor George Osborne’s Autumn Statement with economics editor Chris Giles and political commentator Janan Ganesh, focusing on proposed welfare cuts, tax increases and Osborne’s policy reversal on tax credits.

 

George Osborne has scrapped planned cuts to tax credits in his Autumn Statement. FT political editor George Parker, CBI director of economics Rain Newton-Smith, and Seema Malhotra, shadow chief secretary to the Treasury, talk to Daniel Garrahan about the implications of the statement.
 

 

Labour’s far-left shadow chancellor John McDonnell reads from the Chinese communist leader Mao Zedong’s Little Red Book during his response on Wednesday to George Osborne’s autumn statement. The shadow chancellor tells ‘Comrade Osborne’ that Chairman Mao’s book would "come in handy"