Reflections on the autumn statement

12-12-2016

Gillian Fawcett, Head of Governments, CIPFA 

In his first Autumn Statement the Chancellor, Philip Hammond took the opportunity to set out his stall for the economy and public finances. Surprisingly, he also announced that this would be his first and last Autumn Statement.

Starting next year, the UK will have a budget in the autumn, while a Spring Statement (smaller in scale) will be issued from 2018, replacing the March Budget. The announcement means that the Budget statement due in March next year will be the last spring Budget.

According to Philip Hammond, the rationale for this change is to avoid making hundreds of tax changes twice a year and to allow for greater parliamentary scrutiny of the budget measures ahead of their implementation. Both seem credible reasons and now the ball is firmly in Parliament’s court to exercise greater financial scrutiny over the autumn budget.

The Autumn Statement highlighted a gloomy picture for the years ahead - the public purse will be £122bn worse off in the period until 2021 and debt will rise from 84.2% of GDP to 87.3%, further increasing to 90.2% in 2017/18.

Perhaps one of the most significant policy decisions was that the Government will no longer seek to deliver a budget surplus by the end of this current Parliament, although it is expected that public finances should return to a budget by ‘as early as possible’ in the next Parliament.

This decision has allowed the Chancellor to respond, not with further fiscal tightening and departmental cuts, but by maintaining the current spending plans and using additional borrowing to fund infrastructure investment. Funding this investment will be done largely through borrowing – including a welcome £2bn in R&D, which must involve social and intellectual capital, as well as physical infrastructure – while all other policy decisions will be funded through additional tax and spending measures.

Despite borrowing to fund investment, sticking to the current spending plans means there will be no easing of austerity for public services. This also means the Government will keep to the same broad priorities for the remainder of this Parliament in line with its previous spending decisions, including ring fencing, on NHS, defence, overseas aid, and the triple-lock for pensioners.

There was no formal re-opening of individual Departmental Expenditure Limits agreed at the last Spending Review, although there was a commitment to extra money for the Ministry of Justice for additional prison officers responding to recent incidents. We suspect Departmental Finance Directors are relieved that they are not being asked to find additional savings. However those Departments currently facing the biggest difficulties in balancing the books and maintaining services in the face of rising demand will get no help.

Areas where more detail will be needed to understand the statement’s impact are the implications of the National Living Wage and national insurance changes on spending pressures and how the £1bn from efficiency savings will be allocated. On the latter it will be interesting to see how this is used to incentivise departments to deliver efficiencies which has been a problem since Treasury ended the automatic carry forward of underspends.

Finally looking forward, the Chancellor signalled no changes in ring-fencing of protected departments nor in the pensions triple lock during this Parliament but suggested that these would need to be looked at before the next, a review which CIPFA has been advocating for some time.