From striver alert to future cuts: five things to expect from the Autumn Statement

A few insights from Gavin Kelly to help you navigate Osborne's fiscal arithmetic.

In the Autumn Statement there will be a blizzard of facts, figures, assertions and counter-assertions. There have been a few helpful pointers on what lto ook out for (try this and this), and I’ve already given my tuppence worth on what may happen to the faltering fiscal rules. But here are a few further insights to bear in mind.

First, be on striver alert. Expect plenty of warm words about "do-ers and grafters" who get up and work hard on modest means. In a different part of the Chancellor’s speech there will be tough messages and measures for those working age families who receive tax credits and benefits. Not for the first or last time the impression will be given that these are two distinct groups inhabiting different moral and economic worlds. They aren’t. Three quarters of tax credits go to working households. If reports about capping tax credit increases at 1 per cent are correct then so-called strivers are about to be squeezed too. 

Second, there will be new news on wages – and the longevity of the squeeze. Buried in the OBR report there will new estimates for what is expected to happen to wages and inflation until 2018. In terms of the economics, and politics, of living standards from now until the election this is key data. Given that the OBR’s forecast for growth in 2013 is very likely to be marked down (from rosy 2 per cent figure it set in March) the assumption for earnings may well also fall. Also, for those who want to get inside the numbers, be warned that the figures the OBR uses tend to be a bit optimistic as they are based on the mean rather than typical (ie median) wage.

Third, watch out for childcare. Given the size of the cuts that are coming down the path you might not expect any new areas of spending. But if there is to be any (outside of new capital investment – or more accurately a slowing down of the rate of infrastructure cuts) then childcare may be a beneficiary. Measures to help with childcare costs would support employment, speak to concerns over the cost of living, and be a nod to the Coalition’s woes with some women voters. In terms of what might actually get announced there is likely to have been a lively internal debate. On the one hand, there are those who favour introducing tax-relief – a slightly saloon bar approach - which will inevitably favour the better off (and which has been skewered by my colleague James Plunkett). Against this are those who would like to build on the 15 hours of free guaranteed pre-school childcare. This latter approach would be a step in the right direction and do something to reduce the shocking disincentives to work that many second earners face in low and middle income families. That said, the government may want to hold any such announcement back to the New Year when its Childcare Commission reports.

Fourth, there is the widely anticipated raid on pension tax relief for the affluent. The briefings are that around £1-1.5bn might be raised by lowering the annual limit on pension contributions from £50k to £30k. If so, be ready for a bit of a storm from the well-organised pensions lobby. But bear in mind that tax-relief is highly regressive and very expensive. It is indeed remarkable that the support for higher rate tax payers has been so protected given some of the cuts being made – some of the claims about these measure hammering "middle-earners" are very overdone.

Even so, there are better ways of cutting tax-relief for the affluent than restricting the annual limit: the lifetime allowance for tax privileged pension contributions should be cut instead. Bringing it down from £1.5m to £1m would raise up to £1.5bn (to put this perspective note that the typical size of annuity purchased is £25k). It’s also the case that those who say that this salami slicing of pension tax relief is destabilising for savers have a point: the government should work out once and for all how much it wants to raise from pension tax relief in this Parliament and then draw a line. And when it does this, it should bear in mind that it still needs to find the billions to pay for the final increase in the personal tax allowance to £10k before 2015.

Finally, care needs to be taken in adding up the scale of the future cuts. The briefing by the IFS on Thursday lunchtime will provide the definitive view on this. But if a figure is revealed for new cuts that need to be made in 2017/18 (because the structural deficit gets pushed back by another year) then bear in mind that this will be on top of a pile of other cuts – roughly £23bn - that have already been pencilled in for 2015/16 and 2016/2017 but are yet to be allocated. Osborne is accumulating an ever larger mountain of fiscal misery to be dished out between departments and welfare spending. For a guide to this unpleasant fiscal arithmetic you won’t do better than reading this from the IPPR and this from the SMF.

But also bear in mind, that if the OBR decided at some future date to change its assumptions about the amount of spare capacity in the economy, and therefore the size of the structural deficit, then all of these numbers would be greatly affected. In which case there would be probably be a need for another Autumn Statement.


George Osborne. Photograph: Getty Images

Gavin Kelly is a former Downing Street adviser to Gordon Brown and Tony Blair. He tweets @GavinJKelly1.

Photo: Getty Images
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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.