Pre-Autumn Statement comment
11th November 2015 by Fiona Hotston Moore
This Autumn Statement will be an interesting one. It is the first with our new majority Conservative government no longer having the brakes applied by back-seat Liberal Democrat drivers. The Summer Budget produced a few surprises so perhaps there will be more to come in the Autumn Statement.
The Chancellor will have been reassured by the fall in public sector borrowing in September which was due, in part, to stronger tax receipts. However, it is now unlikely that the full year target for the reduction in UK borrowings will be met: they are predicted to come in at £78bn versus the earlier prediction of £69bn and last year’s £90bn. At the same time, the impact of the efforts to cut the deficit is now starting to hurt more widely with some robust resistance recently from junior doctors, lawyers working in the legal aid sector and those facing benefits cuts, not to mention the House of Lords and an uncomfortable number of the government’s own back benchers. I suspect we may be reaching a tipping point where public sentiment about austerity measures may change.
Also of some concern to the Chancellor will be the disappointing third quarter figures which showed a fall in economic growth to just half of one percent. At the same time, there was a fall in the UK’s August construction figures and the contraction of the trading deficit in goods was not as great as he might have hoped.
The government has expressed a commitment to boost exports and perhaps this is an area we will hear about in the Autumn Statement alongside initiatives to boost productivity. But at the same time it is worrying that the US, China and other European countries are reporting falling economic growth in the last quarter: these are our priority export markets.
The UK CPI inflation figures were negative in September due, in particular, to falls in fuel, food and clothing prices. This will impact those on benefits as a number of these items are linked to the September CPI. The inflation figure also means any significant increase to interest rates is unlikely before Spring 2016.
I expect we will see changes to cut the very generous tax relief currently available to high earners: they get tax relief at the higher rate on their pension contributions, then they benefit again by tax free growth in their fund and finally benefit again with the ability to take some of their fund tax free on retirement. I suspect higher rate relief on pension payments may be abolished or at least reduced imminently.
One area where improvement remains stubbornly elusive is the gap between the rich and poor which continues to get wider. With the exception of the USA, the UK ranks one of the worst for inequality in earnings among developed countries. The top 10% of the population have over half of household wealth whilst the bottom 40% share just 3%. The average CEO now earns 300 times more than his or her workers. The pay hikes of the bosses have far outpaced any increase in productivity or company profits.
Why does this matter? Firstly those earning lower amounts tend to spend their income which in turn boosts the local economy. High earners, on the other hand, spend proportionately less of their earnings and more of the economy’s cash ends up sitting around unproductively. Secondly, as earnings of the lower paid are reduced they are unable to invest in the education of their children and their own development and this exacerbates the issue for successive generations.
Over half of the jobs created in the last two decades have been in temporary roles or under zero-hours contracts and self-employment rather than better quality, sustainable jobs where workers can rely on a steady income that fully supports their families without the need to rely on tax credits, subsidised childcare and other state handouts.
One of the obstacles to increasing the level of good-quality employment is the need to invest in appropriate education and skills in areas like technology, sciences and languages. Unfortunately, many apprenticeship schemes do not improve long-term employability. I hope we will hear about useful measures - not necessarily to squeeze the rich - but instead which will help boost productivity and improve real earnings for the lower paid.
In terms of improving equality and diversity I am not surprised to read that Lord Davies finally accepts that it is not enough to increase the number of women in non-executive roles but that we also need equality in executive positions. After all, it is the executive board and management teams who take strategic decisions and run companies day-to-day. It is rather surprising that it has taken nearly five years for Lord Davies to concede this point. The representation of women in executive board positions has not changed since the launch of the first Davies Report in 2011 and it really is time for action rather than more promises.
Finally, while much fuss has been made about the recent China state visit the reality is that Chinese investment in the UK is in fact only 1% of the total inward investment. Remarkably little has been said about the risks of selling our key assets and infrastructure into foreign ownership. I hope we see greater debate on the risks and costs of foreign ownership of UK Plc.
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