We should have seen it coming. On the Marr show on Sunday George Osborne said:
I’ve always been someone who thought it’s not a weakness to listen to good arguments.
That was a euphemistic way of saying, ‘When I’m wrong, I’ll admit it.’ And today George Osborne performed the biggest U-turn we’ve seen from the Treasury since Alistair Darling had to find £2.7bn to compensate those losing out from Gordon Brown’s abolition of the 10p rate of tax. To his credit, there was no weaselling, or fudging, or pretending “circumstances had changed”; Osborne just accepted the tax credit cuts were a non-starter and chucked them overboard. (Rupert Harrison, his former chief of staff, says that Osborne is a great believer in accepting when you’re going to lose – see 1.02pm.) In what is being dubbed as another U-turn, Osborne has also shelved the proposed police cuts. The whole performance has been funded by a surprise £27bn fiscal windfall, although Osborne is also raising taxes, principally on big business which will have to find almost £3bn a year from 2017 to pay an apprenticeship levy.
Tory MPs seemed delighted. By rights, it should have been a bit of a humiliation (not least because Osborne will have to go to the Commons to seek permission to breach his own welfare cap) but Conservatives seem happy to forgive him for extricating himself from a mess that they were applauding when he created in his summer budget. It just goes to show that sometimes politicians have a memory span that would shame a goldfish.
More seriously, it illustrates how ministers with authority can get away with almost anything. And political figures without authority … well, just ask John McDonnell. In other circumstances his Mao’s Little Red Book gag might have worked, but if you are a shadow chancellor trying to shake off assertions that you are a far-left obsessive, quoting Mao in the Commons chamber is probably not a wise idea. Earlier I said it did not matter much because no one ever paid any attention to the shadow chancellor’s response. Sorry, that was wrong; on this occasion they will.
That’s all from us for tonight. Thanks for the comments.
He doesn’t really need the money, but George Osborne could consider picking up a lottery ticket or two on the way home tonight - as he’s clearly on a lucky streak.
The Office for Budget Responsibility got the chancellor out of a sticky spot tonight, with a surprisingly upbeat view of the economy and unexpected changes to its modelling; which worked out in Osborne’s favour.
The OBR’s upward revisions are good news - there’s an extra £27bn of revenue to tap into. The big picture hasn’t changed - growth will only be around trend levels over the next five years, and the national debt will reach a hefty £1.7 trillion by the time the books are balanced.
But there are significant differences between the measures announced today, and those implemented in the last parliament. Osborne 2.0 is taking a different approach than the original version.
As this chart shows, the consolidation in this parliament relies more on welfare cuts and tax receipts, and less on spending cuts (despite the swingeing measures outlined today)
Photograph: OBR
And the government has also lifted and smoothed the path of current spending; it’s no longer planning the severe squeeze outlined in March’s budget:
RDEL = Resource Departmental Expenditure Limit. Photograph: ONS
The City has taken today’s statements in its stride.
Housebuilding shares jumped by around 3%, on the back of the plan to boost home construction. But the pound is calm tonight at $1.512 to the US dollar, and borrowing costs (yields on UK gilts) are little changed.
Two sectors of the UK economy are griping tonight.
Ultimately, even Lucky George can only do so much -- Britain is still vulnerable to global forces, and a Chinese “hard landing”, or severe geopolitical upheaval, could knock the OBR’s forecasts offline.
The Resolution Foundation has led the way in campaigning against the tax credit cuts originally planned by Osborne. Here is the verdict on today’s autumn statement from Torsten Bell, its director.
On tax credits it is very welcome that the vast majority of families will not see losses next April. The chancellor has done the right thing by reversing these tax credit cuts entirely, rather than fudging the issue.
However Universal Credit is the big loser because the cuts to it have not been reversed. Millions of low-income working families are still set to be significantly worse off by the end of the parliament if the Universal Credit roll-out goes ahead as planned. Pain tomorrow is better than pain today – but it is still pain.”
The Chancellor has toned down his plans to shrink the state. But we will still see large cuts that radically change what that state does. By the end of the parliament, the state will be focused on delivering healthcare and paying pensions, but will do much less to support young people or those on low-incomes.
Small print alert: Railway electrification plan still running late
Gwyn Topham
The chancellor proclaimed in the autumn statement that the big rail electrification projects that were put on hold in the summer, the Midland mainline and TransPennine route, would now go ahead.
The suspension of the schemes had threatened to undermine the “Northern Powerhouse” plan”.
But they will still be finished late - and the money will mainly be raised by selling off railway land, and an extra £700m will be borrowed, adding to Network Rail’s £38.5bn debt.
A review by Network Rail’s chairman Peter Hendy has now confirmed that the majority of the five-year plan can now go ahead with additional investment but found that the original plan was “unrealistic and undeliverable”.
Depots, shop space at station and the land under railway arches is all expected to be sold off, to help plug the funding gap after massive cost overruns on electrification work.
Hendy said no project would now be cancelled and the bulk of the work would be delivered by March 2019. He said “Some projects will cost more and take longer than originally expected but we will see the job through to deliver better journeys for passengers. My review has clearly found that the original plan was unrealistic and undeliverable.”
A separate review by Dame Colette Bowe into the embarrassing Network Rail fiasco has also been slipped quietly out today.
Earlier Andy Burnham, the shadow home secretary, said police spending was only being protected in cash terms, not in real terms. See 2.59am. But the Treasury says that is not true. The autumn statement document says:
The government will protect overall police spending in real terms over the spending review period, an increase of £900m in cash terms by 2019-20.
John McDonnell, the shadow chancellor, has just given an interview to Sky News. He said that Labour had three goals in its campaigning ahead of the autumn statement: to stop the tax credit cuts; to protect police budgets; and to get more money for social care. On the first two at least Labour has been largely successful.
But he stressed that the devil was in the detail. Labour thought that families could still be losing out by up to £3bn, he said.
Asked if his Little Red Book stunt was a mistake, he said it wasn’t. He was just making a point about how Osborne was opposed to the British government nationalising services while quite happy to let state-run Chinese enterprises operate in this country. He was not holding Mao up as a role model, he said.
John McDonnell, the shadow chancellor, has not given any TV interviews yet about the autumn statement. His Labour colleagues are having to field questions about his Little Red Book stunt, and the general view seems to be that he would have been better off leaving that joke on the cutting room floor. Here’s a line from Angela Eagle, the shadow business secretary.
Angela Eagle on McDonnell's Mao moment: "I don't know whether it was funny or not. I think it probably backfired a bit."
Chris Leslie, the former shadow chancellor, has told BBC that it would be wrong to see the tax credits concession as a U-turn. That is because, as tax credits get phased out and claimants move over to universal credit, the new, less generous benefit regime will come into force anyway.
The chancellor performed a major U-turn on tax credits by cancelling the reforms altogether. Instead tax credit claimants will only be affected by the freeze in benefits over the next four years, rather than a cash-terms cut.
However, cuts to Universal Credit will remain, and will mean that new Universal Credit claimants are likely to face much more meagre levels of support than those claiming tax credits. In the long run this will mean that the Chancellor’s tax credit cuts in effect are implemented anyway. In the short run, however, it will create a number of issues for claimants, and will make the task of communicating the benefits of Universal Credit an uphill struggle for the Government.
First, there are likely to be large inequities between different areas, with areas that have already implemented Universal Credit offering much lower support. In 2016-17 for instance, a one-earner couple with two children would take home nearly £800 more if living in an area using the tax credit system, compared to an area using Universal Credit, if working full-time earning the minimum wage. This could create perceptions of regional unfairness.
Second, tax credit claimants have a big incentive not to change their circumstances in areas in which Universal Credit is being rolled out. Since new claimants, and claimants with changed circumstances, are likely to be enrolled in Universal Credit, those already receiving tax credits would do well to stay on them by keeping their circumstances unchanged. This could mean refusing to take on more work, or refusing a promotion, for fear of being unable to reclaim tax credits at a later date.
Our economics editor, Larry Elliott, says the Office for Budget Responsibility did George Osborne a big favour today, by adjusting their forecasts so dramatically:
Chote’s team have had another look at their forecasts for likely tax revenues. They have done some modelling. And they have concluded that more money is going to come rolling in to HMRC over the next few years than previously envisaged. To be precise, an extra £2.5bn this year, £4.1bn next year, £6.3bn in 2017-18 and £5.4bn in the year after that.
With all this lovely lolly flowing in, Osborne could get himself off the hook on tax credits. Provided, of course, that the tax really does come in on forecast. Chote will clearly be top of the chancellor’s Christmas cards list this year, because it has enabled him to execute a U-turn with the minimum of fuss.
It has to be said, though, that the OBR’s forecasts have proved wanting in the past. They could easily be wrong again.
Small print alert: OBR assuming another delay in the roll-out of universal credit
The OBR is assuming there will be another delay in the roll-out of universal credit. This is from the OBR’s report.
We have added our own forecast judgement of a further six-month delay to the managed migration phase of the [universal credit, or UC] rollout. As usual, we have considered evidence from DWP and the latest assessment of UC rollout by the Major Projects Authority. While this indicates greater confidence in the ‘transition phase’ rollout plan, considerable uncertainty remains over the ‘managed migration’ phase. And of course the transition phase rollout schedule has just been pushed back six months, just a year after the previous delay.
And this chart hightlights all the delays that have already occurred. (The line on the left shows what was originally meant to happen, and the lines on the right are the most recent forecasts.)
Relieved that (most) tax credits aren’t being cut? Or perhaps you work in a public service whose budget is being cut - or a company being hit by the Apprentice’s Levy?
Whatever the case, we’d like to hear how the spending review will affect your life:
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