Following months of political infighting and internal lobbying amongst Whitehall departments, George Osborne finally revealed today the details of the Government’s spending plans until 2020 and where the £20bn in cuts to Whitehall budgets is going to be found. Displaying his usual masterful choreography at the dispatch box, the Chancellor aimed to regain the political momentum after some challenging recent weeks.
Such is the confidence of George Osborne that, following the barrage of criticism over the proposed changes to tax credits, the Chancellor said today that he had decided not to slow the pace of cuts but to abolish them altogether, noting ominously perhaps, that they will be phased out anyway with the introduction of the Universal Credit. This u – turn on tax credits is bound to make for tomorrow’s headlines.
He said he aimed to make Britain the “most prosperous and secure nation in the world”. Despite many pundits predicting a worsening state for the public finances, the Chancellor said economic growth is set to improve and he will be able to deliver on his projected £12bn of welfare savings. He also confirmed that he will stick to his plan is to run a surplus of £10bn by 2020.
Other headline grabbing areas included the already trailed announcements on housing, with a new five point plan to boost the housing supply and the new 0.5% rate for the apprenticeships levy for companies with wage bills of over £3m. The attack on buy-to-let continued with the announcement of a new 3% additional stamp duty on buy-to-let and second properties.
Another tactical masterstroke lay in police funding. The Treasury had previously leaked that cuts to police budgets were likely, which the Home Office and Police were warming up to brief against, only for Osborne to announce today that no such cuts would be made. Of course, how could he in the current climate.
Further key announcements included; additional clamp downs on tax avoidance, the gift that seems to keep on giving, details on the new apprenticeships levy which will come into effect from 2017 and a 50% increase in capital investment in infrastructure. Often criticised for not supporting women, the Chancellor announced that the Government would continue to campaign to reduce the VAT on sanitary products but in the meantime would create a fund from the tax raised to give to women’s charities.
On the spending side, aside from the key ring fenced areas of Health, Education, Defence and overseas aid, many departments will see their budgets radically cut. There will be big reductions of around 27% do the Treasury, DCMS, the Cabinet Office, DEFRA and BIS. This should make for interesting times in Whitehall as they grapple to deliver within these new allocations.
So, as we have come to expect from Osborne, now a seasoned deliverer of these fiscal statements, this was a tough Autumn Statement from a confident Chancellor, a man who is not afraid to u-turn and deliver huge spending reductions which will fundamentally reframe the responsibilities and role of Government. Helped by a pitiful response from Shadow Chancellor John McDonnell, Mao’s Little Red Book in hand, today’s was a clear statement to set the political agenda and Osborne’s campaign as our Prime Minister in waiting.
Key things you need to know
1. Welfare
George Osborne announced that the £4.4bn cut to Tax Credit will be scrapped altogether; that he’s listened to the concerns and decided not to press ahead. The Chancellor can do this, he says, because of the “improved” public finances. However, the devil will be in the detail as Tax Credits are being phased out anyway, as Universal Credit is introduced. What actually will remain unchanged is the tax credit taper rate and the thresholds. The Shadow Chancellor John McDonnell nevertheless attempted to capitalise on Osborne’s U-Turn, labelling his plans ‘’economically illiterate’’, a remark which was meet with jeers from all sides of the House.
2. Health
The NHS will be given an additional £6 billion next year as an “advance” on the £8 billion spending increase that the Government has promised by 2020. He also announced £600m more funding for mental health and committed to a 7 day NHS. Health service Chief Executive Simon Stevens offered a ringing endorsement of the Chancellor’s plans, remarking that ‘’the NHS had been heard and listened to’’. The debate over Junior Doctor contracts was notable in its absence, though the Government will welcome this diverted attention.
3. Social Care
The Chancellor again committed to integrating health and social care. Local Authorities will be able to levy a new “social care precept” on council tax to spend on adult social care to help fund the changes. By end of the Parliament there will be a real terms increase in social care spending. He also announced an increase of funding to the Better Care Fund to support these reforms.
4. Housing
One of the sweeteners of the review was Osborne’s announcement of the doubling of the housing budget, and the “biggest housing building programme” by any government since the 1970s. With a shout-out to London mayoral candidate Zac Goldsmith, Osborne announced a new London-focussed Help to Buy scheme, as well as the building of 4,000 affordable new homes by the end of the decade. In addition, a 3% extra stamp duty levy on second homes and Buy-to-let properties will raise £1bn, which is sure to be a popular policy given current strain on housing markets.
5. Apprenticeships
The Chancellor again emphasised the Government’s commitment to increasing apprenticeships to 3 million and outlined the details of the Apprenticeships Levy.
The levy will be set at 0.5% of businesses’ paybill, for companies with an annual paybill of over £3 million. Many SMEs will be unhappy about the added cost, though the £15,000 allowance to offset the impact of the levy should alleviate some concerns.
6. Devolution
As well confirming the City Deals that have already been made, and detailing a few currently in negotiation, Osborne announced reforms to business rates. The uniform Business Rate will be abolished and local authorities will get to keep all revenue from business rates by the end of the Parliament. Councils will also be able to keep 100% of receipts on assets they sale to spend on local services.
7. Business
Mr Osborne announced the extension of Business Rate relief for 600,000 small businesses. He also committed to protecting science funding in real terms, a measure being called for by both the Science and Technology Committee and Labour Party. He also confirmed the Government will commission Sir Paul Nurse’s to review Research Councils and funding streams.
8. Transport
Osborne announced the Department for Transport’s operational budget will fall by 37% but capital spending will increase by 50% to £61bn, with an eye on major projects including Crossrail and HS2. Funds for a road investment programme will continue, and plans for the new Transport for the North authority will soon come into force
9. Policing and Counter-Terrorism
Osborne reaffirmed the Government’s commitment to security by increasing the counter-terrorism budget by 30%. Despite the well-publicised bad blood between the Treasury and the Home Office, the Chancellor announced the Policing budget would be protected in real terms, which amounts to a cash increase over this Parliament.
10. Education
Osborne reinforced the Government’s commitment to Academies and announced that academization will be offered to sixth-form colleges, so they won’t need to pay VAT. The National Citizenship Service will be expanded to 300,000 places, and the base rate of funding for 16-19 students will be protected too. He also re-affirmed the Tory pledge to boost free childcare for working parents up to £15,000, and announced that the Department for Education will consult on a new National Funding Formula for schools.