There has been a very mixed response to today’s autumn statement by the chancellor of the exchequer.
As expected, George Osborne confirmed that growth would be lower than previously predicted, while borrowing and unemployment would also be higher than forecast in his budget in March.
He blamed the eurozone crisis, the rise in global commodity prices and a reassessment of the UK’s economic boom and bust which were bigger and deeper than previously believed.
Mr Osborne said that the public sector would bear the brunt of coping with the new situation. Public sector pay rises would be capped at 1 per cent for two years once the current pay freeze ends in 2013. The number of public sector jobs likely to be lost over the coming five years is higher than expected. Instead of 400,000, the figure now stands at 710,000.
However, Mr Osborne confirmed that £40 billion of “credit easing” would be made available to underwrite bank loans to small firms. He announced details of a £5bn plan to improve infrastructure in England over the coming three years, with £25bn more planned for future years. There was also confirmation that the 3p rise in fuel duty in January will be delayed or frozen.
“Given the dire state of the public finances, said the CBI Scotland’s assistant director, David Lonsdale, in a preliminary response, “and with key overseas markets particularly in Europe still in a funk, this was always going to prove a difficult backdrop to the chancellor’s statement.
“He is right to continue to pursue a tough programme of fiscal consolidation in order to eliminate the public spending deficit, a necessary precursor if he is to halt let alone reverse the ballooning national debt and higher interest payments that come with it. The chancellor’s statement did also contain a number of welcome announcements for businesses – help to reduce the cost of growth capital and make investing in start-ups more attractive, reductions in energy bills for heavy industry, and an extension of the R&D [research and development] tax credit.”
The CBI wants the Scottish government to clarify whether it will allow firms operating in Scotland to defer a portion of the rise in business rates bills expected to come into effect next April.
In its comment, the STUC said that the statement revealed the true extent of the unfolding disaster that is the coalition’s economic policy. STUC general secretary, Grahame Smith, said that the chancellor’s programme “is failing on its own terms as forecasts for borrowing increase significantly; by more than £100bn on the March budget forecasts.
“Measures announced today on infrastructure investment and credit easing are much too weak to avoid an extended period of economic stagnation and high unemployment; the inevitable consequence of a dangerously irresponsible and ideologically motivated austerity programme.
“As usual, the chancellor was unable to hide his contempt for ordinary workers. Public sector workers will suffer at least another couple of years of falling real incomes and potentially more as the chancellor seeks to undermine established collective bargaining processes. The meagre employment and health and safety protections afforded to UK workers will be further diluted.”
Gareth Williams, head of policy at the Scottish Council for Development and Industry, pointed to the slowing economy, falling global confidence and higher than anticipated borrowing, and argued that the government had to prioritise new stimulus for growth. “We have been calling for increased capital investment,” he said, “and hope that the Scottish government will be able accelerate shovel-ready transport, housing and – rolling out today’s announcement for Edinburgh – super-fast broadband projects.”
The Federation of Small Businesses in Scotland was pleased that much of the chancellor’s rhetoric suggested he understands many of the issues holding back the Scottish small business community. However, its Scottish policy convenor, Andy Willox OBE, said “it remains to be seen if any of the individual measures announced today will effectively tackle the problems that have been identified as barriers to economic growth.”
Mr Willox was pleased by the proposed fuel duty increase, and said that every penny spent on fuel is money not spent elsewhere in the economy. “This measure has to be welcomed. However, cancelling a proposed increase will hardly fill with confidence businesses and families struggling to pay at the pumps at the moment.”
However, he was less complimentary when it came to the details of the credit easing scheme. “Some small firms,” he said, “will roll their eyes when they discover the banks will continue to be gatekeepers for much of this state-backed lending. The government must therefore go further to promote the emergence of alternative forms of finance and greater competition in the banking sector.”
Although the chancellor announced an expansion in spending on infrastructure, that came as little comfort to the Scottish Building Federation. Its chief executive, Michael Levack, pointed out that it coincided with new statistics showing the number of new homes built in Scotland fell by 12 per cent between April and June this year compared to the second quarter of 2010.
“Last week,” he said, “leading industry bodies set out a clear plan to unlock growth in the UK construction industry. While the chancellor’s statement puts forward interesting plans to boost capital investment in certain areas, there are other important priorities highlighted by the industry which have been ignored – not least our ongoing request for a targeted cut in VAT on home improvements to kick-start job opportunities in the industry and green our built environment.”
That view was shared by Ed Monaghan, CEO of house builders Mactaggart & Mickel, who said that “the government’s commitment to ‘getting Britain building’ acknowledges the fundamental role the housing and construction industry plays in the wider economy acting as a catalyst to other goods and service sectors.
“More than ever, British businesses have to be supported for growth and any practical action the government can take to do so, such as improving availability of funding through credit easing, should be both encouraged and utilised. Supporting growth will increase tax revenues and thus help reduce the deficit, doing nothing is no longer an option.”
Both hoped that the Scottish government would take the opportunity to prioritise any additional funding for capital projects released through the Barnett Formula to kick-start projects that are ready to start but are currently stalled due to a lack of bank finance. They were joined in welcoming the new emphasis on infrastructure by the Scottish Federation of Housing Associations.
It urged the Scottish government to boost funds available for new-build affordable housing this year, using the extra funding made available to Scotland as a result of funding announcements contained in today’s statement. Its CEO, Dr Mary Taylor, said that building affordable housing provided a unique boost to jobs and struggling local economies, as well as tackling housing need.
“We urge the Scottish government,” she said, “in the wake of the autumn statement, to reverse the 30 per cent cut to this year’s affordable housing budget. This would avoid the prospect of the number of new homes further plummeting, with construction activity and all the associated benefits stalling in communities across Scotland. Our message to the Scottish government is, build homes, stimulate growth.”
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