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Further challenges lie ahead for chancellor

By Richard Ramsey

Published 26/11/2015

George Osborne delivers his joint Autumn Statement and Spending Review in the House of Commons
George Osborne delivers his joint Autumn Statement and Spending Review in the House of Commons

The Chancellor has developed something of a reputation for over-promising and under-delivering when it comes to fiscal austerity. He certainly didn't shed this image in the first all-Conservative Spending Review since the mid-1990s.

It was anticipated that he would be fiscally embarrassed, as it was thought borrowing would have to be higher than projected in July, due to tax receipts being lower during recent months.

This raised the prospect of him failing to meet his fiscal rules and compromising a planned £10bn surplus by 2020. He was also under pressure to phase in the cuts to tax credits, with the latter potentially being replaced by cuts to welfare elsewhere. Outside welfare spending, departmental spending was expected to be subjected to sizeable cuts.

However, once again, the Chancellor has embarked on some fiscal escapology, with plans to cut tax credits shelved altogether. Meanwhile, the scale of departmental spending cuts, whilst severe for some departments such as transport, were not as bad as anticipated.

Northern Ireland departments will see a cumulative decline of 5% over the next four years in their resource budget. For capital spending, funding available for infrastructure investment via the block grant through to 2020-21 will rise by 12% in real terms, meaning over £600m more than if it had been held at 2015-16 levels.

So how did the Chancellor do all of this?

First of all, he had more than a little help from the fiscal anoraks and tax modelling gurus in the Treasury, who were able to gift him around £34bn in additional revenue before he even started.

There was also a greater emphasis on raising taxes.

We were provided with detail on the Apprenticeship Levy - which is intended to create three million new apprenticeships by 2020. This levy will come into effect in 2017 at a rate of 0.5% of an employer's pay bill. The levy will only be paid on employers' pay bills over £3m, and less than 2% of UK employers will pay the levy.

Nevertheless, these employers may see this as corporation tax by the back door, with the Chancellor taking back what he has gifted with the forthcoming cut in corporation tax to 18% by 2018.

Indeed, the new Apprenticeship Levy charged on business will raise a massive £3bn per annum, the equivalent of raising corporation tax by almost 4%.

Another key theme was the devolving of more powers to the regions, with Cardiff and Glasgow set to secure city deals.

Are Belfast or Derry-Londonderry lobbying for the same treatment? If not, why not? Raising revenue at a local level is also a key theme in the Autumn Statement. While overall the Spending Review, from both a Northern Ireland and UK perspective, is better than anticipated, the next five years still represent a challenging fiscal environment.

Furthermore, it is all based on the assumption that robust rates of economic growth continue. Indeed, any downturns in the global economy will impact on these forecasts and would require corrective fiscal surgery. And the cuts in public spending levels will require further significant reductions in public sector employment.

Fiscal austerity wasn't to the fore yesterday, but it certainly isn't over yet. Instead, it remains a work in progress.

Belfast Telegraph

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