Autumn Statement: What has changed?
- 6 December 2012
- From the section Business
What has changed as a result of this Autumn Statement? The answer is nearly everything about Britain's economic and fiscal situation has changed, though not as dramatically as it did in the last one.
The only thing that hasn't really altered is George Osborne's basic approach. He's just halved the number of fiscal rules that he is going to abide by - from two to one.
For economists, the key change is to the Office for Budget Responsibility's (OBR) assessment of the economy, which I mentioned earlier.
Though it is more optimistic about the immediate room for growth, the OBR has revised down its growth forecasts for the next few years, and once again deferred the time at which we will get back to our long-term potential growth rate, which they now think will not happen until 2016.
The more transparent treatment of the net gains to the Treasury from quantitative easing make the picture brighter, but the underlying deterioration is there.
For the ratings agencies, the OBR's re-assessment of growth is important, but also key is Mr Osborne's abandonment of his promise to have the debt ratio falling by 2015-16.
Fitch said after Mr Osborne's announcement that the government's policy framework had been a key factor helping the UK to hold on to to its top AAA credit rating, and the loss of the debt rule had weakened both the coalition's credibility and the rating.
What will everyone else take away from Wednesday's announcements? Behavioural economists say it's human nature to notice concrete losses more than gains forgone.
That might help the chancellor when it comes to some of the measures he has announced. But he can't get away from the fact that it's going to be a grim few years - a grim few years that he has decided he is powerless to confront.
Some businesses might see an absolute fall in what they pay in corporation tax in 2014. Or they will find, with the help of Mr Osborne's new £2bn investment tax allowance, that they can invest more cheaply than they did before.
The same is true of the individuals affected by the increase in the personal allowance - which, incidentally, the OBR says has put the government on course to achieve at least one of its targets. From now on Mr Osborne only need to increase it in line with inflation, in the usual way, for it to get to £10,000 by 2015-16.
So, these companies and individuals could well see a cash gain, as a result of the new measures.
It's true and important to note that many working households will see that gain offset, in reality, by the below inflation rise in tax credits. But tax credits will still go up, on the new plans. So will public sector pay. They just won't go up as fast as inflation.
In other words, a lot of the losers from today's measures are "real terms" losers, but they will not find that cash is being taken out of their pockets that they have now.
Politicians have been pilloried for drawing such a distinction in the past. Anyone concerned about the day to day needs of lower income households - and, indeed, most economists - would not think that it matters. However you cut it, these families are worse off than under previous plans. But for politicians and quite a lot of households, the difference between cash losses and real terms losses is, er, real.
Many of the benefit changes introduced since 2010 have or soon will cut households' income in cash terms. The changes to housing benefit and the benefit cap are the most obvious examples, or the removal of child benefit from higher income families.
By and large, the benefit and tax changes announced on Wednesday will not do that, though that will be cold comfort for the 400,000 extra people who will now hit the higher rate income tax threshold in 2014.
But, however those losses are ultimately perceived, it's probably not Mr Osborne that has done most damage to the prospects of ordinary households this week. It's the economy - or at least, the economy as viewed by the OBR.
As the Resolution Foundation points out, in its forecasts the OBR has once again put off the date at which average earnings will start to keep up with inflation, from the second quarter of next year until the second quarter of 2014.
At that point the median full-time wage will be 7.4% lower than it was in 2008 level. The Foundation reckons that the wages of someone in the middle of the income distribution in 2017 will still be lower than in 2000.
As I predicted earlier in the week, the OBR has given him this bad news, but it has also given the Chancellor a good alibi: it says the basic deterioration in Britain's economic health since 2010 is not his fault.
That is extremely helpful politically but it does raise the risk that he will seem to be the prisoner of events - holding on to his plans and the OBR's justifications, as the economic picture gets steadily worse.
As it happens, the OBR does think Mr Osborne made a positive difference to the economy with Wednesday's announcements. On balance, it thinks the chancellor has boosted growth between now and 2015 by 0.1%.
Apparently, Mr Osborne believed that this was the most he could do, without damaging the UK's credibility in ways that could ultimately do more harm than good. (I say apparently, because if he thought he could do more, you have to assume he would have done it.)
We will literally never know whether the chancellor was right to think his room for manoeuvre in the winter of 2012 was this small. That is one question the OBR is never going to answer.