What should we expect from today's Autumn Statement?

29 November 2011

A £1 billion plan to get young people back into work as well as a huge spending spree on infrastructure are set to be among the announcements in the chancellor's Autumn Statement today.

George Osborne will give an update on the state of the UK economy and unveil strategies to stimulate growth today (29 November).

Ministers have already hinted at what some of the strategies will be. Deputy prime minister Nick Clegg said that £1 billion would be spent on providing subsidised work and training placements for thousands of young people. To pay for it, he said the government is considering a "number of savings".

Osborne's deputy, the chief secretary to the Treasury Danny Alexander, has also said that Tuesday's announcement will see funds switched to "capital spending plans". This is widely believed to be a reference to switching spending from current to capital projects such as roads, broadband and other infrastructure.

However, Vicky Redwood at Capital Economics is doubtful that these strategies will have much impact on the economy. "The ailing economy desperately needs more support and yet the chancellor is more hemmed in than ever by the fiscal position. With no money to spend, Mr Osborne will instead use the Autumn Statement to flesh out his Plan for Growth. But these primarily long-term, supply-side measures will not help to dig the UK out of its hole in the near term."

She says that the best the public can hope for is that the government scrapes together enough cash to scrap or delay the rise in fuel duty. "This will probably be partly paid for by uprating benefits by less than September's 5.2% inflation rate."

After September's inflation figures were announced last month, the Treasury would confirm that out of all the benefits that are linked to September's inflation rate, it had only decided that ISAs would be increased in line with the 5.2% figure. Next April the ISA limit will rise to £11,280. "No further [announcements are] going out in the near future," a spokesman said.

Since then Clegg has admitted that the government is worried about the cost of increasing benefits by 5.2%, saying it would "not balance the books on the backs of the poor".

More positive – but rather hopeful – predictions for the Autumn Statement include extending the first-time buyer stamp duty concession (currently due to end next March), allowing child trust funds to be transferable to Junior ISAs, and scrapping the 50% income tax rate and raising the personal allowance.

Richard Godmon, tax partner at Menzies, comments: 'We hope to see cuts in income tax in order to increase consumer and business spending. As well as scrapping the 50% rate, we would like to see personal allowance increased to £15,000 and the 20% rate threshold increased to £45,000.

"This would give low and middle-income earners much more disposable income and provide a feel-good factor that should translate into more spending. Removing the 50% rate, regardless of how much revenue it raises, will send a clear message to outside investors that the UK is open for business."

In terms of raising money, George Bull, senior tax partner at Baker Tilly, says one of the most effective ways would be raise VAT. "Increases in VAT rates (standard and/or reduced rate) would cause public outcry but represents the most likely means of raising significant tax revenue, if it is considered that this is needed, as other options would likely be even less popular," he says.

According to Ruth Lea, economic adviser to the Arbuthnot Banking Group, the government needs to be much more radical. "It should review some departmental spending allocations made in last year's Spending Review. In particular, the Department for International Development (DFID)'s extraordinarily generous budget should be reviewed. The recent Public Accounts Committee report into DFID's financial management cast serious doubt on its ability to manage corruption and fraud. Savings should be made. The savings can then be allocated to other departments or, better, used for funding much needed tax cuts."

This article was taken from our sister website Money Observer

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