A revised growth outlook that purported Britain to be the fastest growing major advanced economy in the world was among a host of announcements that Osborne made, while he also pledged to improve the lots of those who want “to save, to work, and to buy a home”.
UK growth
Speaking of the state of the economy he inherited back in 2010, the chancellor said: “Back then, Britain was on the brink. Today, against a difficult global backdrop, I can report higher growth, lower unemployment, falling inflation and a deficit that is falling too.”
However, the upward revision to near-term growth was accompanied by a downward revision to longer-term growth forecasts from the Office for Budget Responsibility (OBR), as Howard Archer, chief UK and European economist at IHS Global Insight, points out.
“While the OBR has raised the near-term GDP growth forecasts, it has trimmed them further out,” he said.
“This is largely due to the fact that the OBR believes that with unemployment falling faster than previously expected, it believes there is less spare capacity in the economy than believed in March, and therefore less scope for above-trend growth in the future. It also partly reflects the fact that the OBR sees lower global growth than had been expected back in March, which will affect UK exports.”
The deficit
The chancellor also said the deficit is at half the level it stood at in the almost four years ago when the coalition was voted in and that it would continue to fall in both absolute and relative terms.
According to the OBR’s forecasts, the UK’s public sector borrowing requirement will fall over the next four year and will become a surplus by the 2018/19 financial year. To achieve this, however, further significant spending cuts are needed.
Trevor Greetham, director of asset allocation at Fidelity, said: “George Osborne says the best defence against a global downturn is to press on with the ambitious deficit reduction plan. The markets prefer what’s going on in Japan where prime minister Shinzo Abe responded to economic weakness by postponing a tax hike and promising further government spending.”
Stamp duty overhaul
Stamp duty reform was among one of the biggest changes, with an estimated 98 per cent of those home buyers benefiting from measures to end the current ‘slab’ system, which is viewed as a cause of distortion in the housing market, and bring in a graduated rate.
CML director general Paul Smee, said: "This fundamental reform has been a long time coming, but better late than never. Although there are losers as well as winners, the vast majority of mortgaged transactions will benefit from lower tax as a result of this move."
CML data suggests that the proportion of mortgaged transactions that would pay more tax under the new system is around 1.5 per cent.
Greetham (pictured) added: “When austerity was at its height early in the parliament the economy flat-lined and government debt continued to rise. Recent economic strength in the UK has been less about fiscal rectitude and more about direct measures to stoke up a housing boom. In that sense, cutting stamp duty is one last roll of the dice before the election.”
“It isn't obvious where the offsetting stimulus comes from if housing continues to slow and UK government spending is cut back as anticipated in the next parliament.”
Tweaks to ISAs
Investors and savers will be pleased that another announcement stated the ISA allowance would rise by 1.6 per cent – to £15,240 – next March despite its huge jump this year. He also confirmed that reform to allow pensions and ISAs to be inherited with tax advantages in place when a spouse dies.
Calum Bennie, savings analyst at Scottish Friendly, says the news is good for savers although any immediate benefit will be muted.
“The further extension to the amount people can save tax free will be universally welcomed and the removal of tax on savings that are passed on after death is the icing on the cake,” he said.
“However, the problem is that these changes are being introduced against a backdrop of a low interest rate environment, meaning that savers are still getting a poor return on cash savings accounts.”
The northern powerhouse
Osborne also announced a series of measures aimed at economically benefiting those outside of London as part of a recently launched plan to create a ‘northern power house’ to rival the UK capital.
These included investment in transport networks in the north of England, the development of research centres in material science and high value manufacturing, and a sovereign wealth fund to invest the proceeds of shale gas back into the north.
Stephen Ford, head of investment management at Brewin Dolphin said: “Whether it is new theatres, tax breaks or science investment, Osborne produced a statement to benefit non-Londoners with his plans for the regions.
“His plans for stamp duty will benefit those buying homes outside the capital, while the rest of his ‘Northern Lights’ strategy should provide even more regeneration across the country.”
Osborne’s electioneering?
Christopher Mahon, investment manager at Baring asset management says new measures had a twang of electioneering.
“The Autumn Statement has been put together with an explicitly political agenda. With the election looming, this is about helping the coalition win in May,” he said.
There is little here that will change the broad direction of the UK economy, but there are lots of eye catching smaller initiatives. While politically savvy, these aren’t without risk.”
“The far more important question facing the UK is whether there will be an effective government of any colour after May 2015. With polls as they are, there is a good chance of a far weaker coalition emerging, with a smaller majority. “
“How markets react to the prospect of a far less stable UK government may well end up as one of the defining stories of 2015.”
