Key Points from the OBR
- UK Economy picked up strongly. Forecasts revised up to 1.4% growth in 2013 and 2.4% growth in 2014.
- Private consumption and housing investment have surprised on the upside, while business investment and net trade have continued to disappoint.
- Underlying public sector net borrowing (PSNB) is forecast to be £111.2bn this year, £8.6bn lower than our March forecast.
- The downward revisions to borrowing forecasts are largely a result of growth and therefore reduce the overall budget deficit but not the structural budget deficit.
So what about the fiscal mandate?
- The Government's ‘fiscal mandate' requires it to balance the cyclically-adjusted current budget (CACB) in five years' time. A surplus is expected in 2017-18. As such the OBR say there is significant headroom against the fiscal mandate.
- The supplementary target – for public sector net debt (PSND) to be falling as a share of GDP in 2015-16 – will not be met. As previously forecast, the OBR expect PSND still to be rising in that year.
Key Policy Announcements (and disappointments)
The Chancellor was right to stress the risks to recovery but did too little to support the investment that would secure it. The Autumn Statement contained some useful measures on apprenticeships, skills and business rates, but it failed to send a clear signal to industry that now is the right time to invest and create new jobs. This is a particular concern given that the OBR's forecasts once again show Business Investment has been weaker than expected.
In particular, this Autumn Statement failed to address the growing threat to investment from energy prices that are squeezing margins and racing ahead of our competitors.
There was an absence of a further support package for energy intensive companies:
Industry, especially energy intensive users, will be dismayed that government has failed to address the genuine concerns surrounding the uncompetitive price of energy for UK manufacturers. Companies looking to invest and create jobs in the UK need a long-term commitment by government to control costs increases and compensate those most affected. Without this commitment, making the case in global boardrooms to invest in the UK will get increasingly difficult.
However, there were positive measures to boost apprenticeships:
Businesses have long been calling for a revolution in how Apprenticeships are funded, and today their calls have been heard. Placing funding in the hands of the employer will create a truly responsive, relevant skills system that delivers high quality apprenticeships demanded by both employers and learners.Employers now need stability and certainty on Apprenticeship funding. Government must build a system that is made to last and resistant to the constant chop and change we have seen in the past. As such, we await the technical consultation on how the model will work in practice, expected in Spring 2014, and we will consult carefully with members to ensure that the model taken forward is fit for purpose and works for employers of all sizes.
As businesses increasingly seek higher-level skills to fulfil their future growth ambitions, the announcement of 20,000 Higher Apprenticeships and £50m funding for STEM subjects at HE, will help ensure demand is matched by supply. We know manufacturers have an increasing appetite to offer Higher Apprenticeships to access the skills they need. Routing funding through the employer will mean they can demand the higher-level provision they need. This also needs to be matched by higher apprenticeship standards that are relevant and responsive to industry needs. The Apprenticeship Trailblazers should evolve into sector-led Industrial Partnerships who are able to design and develop these.
And the move to cut national insurance contributions for employers of U21s will help
Cutting national insurance payments for employers who hire young people will also help to make inroads into youth unemployment and help firms bring new skills into their business. For many companies young people are the lifeblood of their business, but for some recruiting young people with few skills and experience can be risky, and this will help alleviate this risk.
Speeding up increases in the state pension age was a tough decision, but the right one
Today's tough decision to speed up increases in the state pension age was the right one and was backed up with measures to support saving for retirement. The government now needs to look at whether it has the right package of measures on training, careers and rehabilitation to allow older employees to prolong their working lives.
While boosting overseas collaboration should support effective science and innovation
The Emerging Powers Research and Innovation Fund should help the UK to build collaborative research relationships with the emerging markets that will increasingly be a source of demand and growth for UK manufacturers. The UK's strong record of international collaboration on research already means our research base punches above its weight, and these measures should help the UK build on existing strengths, encouraging collaboration with the broadest range of countries.