{"id":22459,"date":"2022-11-18T16:08:04","date_gmt":"2022-11-18T16:08:04","guid":{"rendered":"https:\/\/ounews.co\/?p=22459"},"modified":"2022-11-18T16:08:04","modified_gmt":"2022-11-18T16:08:04","slug":"the-good-the-bad-and-the-ugly-of-the-autumn-statement","status":"publish","type":"post","link":"https:\/\/www.open.ac.uk\/blogs\/news\/arts-social-sciences\/the-good-the-bad-and-the-ugly-of-the-autumn-statement\/","title":{"rendered":"The good the bad and the ugly of the Autumn Statement"},"content":{"rendered":"<p><em>By <a href=\"https:\/\/www.open.ac.uk\/people\/jl4982\">Jonquil Lowe<\/a>, Senior Economics lecturer, personal finance<br \/>\n<\/em><\/p>\n<p>Leaks in the run-up to the Chancellor&#8217;s Autumn Statement primed us all to expect the worst, but his announcement was surprisingly upbeat.<\/p>\n<p>It included:<\/p>\n<ul>\n<li>Spending increases to protect public services<\/li>\n<li>Further help for all with energy costs, a repeat next year of targeted cost-of-living support<\/li>\n<li>And assurances that in-work benefits and state pensions would rise by 10.1% in April, in line with September\u2019s inflation rate<\/li>\n<\/ul>\n<p>But it comes with a sting and a gloomy outlook as household living standards are expected to fall by 7% over the next two years, the worst since the 1950s according to the <a href=\"about:blank\">Office for Budget Responsibility<\/a> (OBR).<\/p>\n<h2><strong>You can\u2019t buy as much anymore with the same cash<\/strong><\/h2>\n<p>Households are already being squeezed because wages are rising at around 6% a year while annual inflation is 11.1%.<\/p>\n<p>This will be exacerbated by the freeze on tax thresholds being extended until April 2028, instead of rising with inflation.<\/p>\n<p>As wages and other incomes rise, the OBR estimates that 3.2 million people currently below the tax and national insurance thresholds of \u00a312,570 earnings will become taxpayers by 2028.<\/p>\n<p>Similarly, around 2.6 million people who currently pay income tax at the basic rate will become higher-rate taxpayers.<\/p>\n<h2><strong>Help for some but it\u2019s going to be tough<\/strong><\/h2>\n<p>While the energy price guarantee shielding households from the full impact of soaring global energy prices is extended from April, energy bills for the \u2018typical\u2019 household will be allowed to rise to \u00a33,000 a year (against \u00a32,500 currently).<\/p>\n<p>To help with the cost of living, next year, there will be grants of \u00a3900 for households on means-tested benefits, \u00a3300 for pensioner households and an extra \u00a3150 for individuals on disability benefits.<\/p>\n<p>And there is partial help if you\u2019re in social housing \u2013 these rents were set to rise by up to 11.1%, but will now be capped at 7% next year, yet it\u2019s still a substantial rise.<\/p>\n<p>The <a href=\"about:blank\">Bank of England<\/a> base rate is likely to rise further next year putting pressure on homeowners buying with a mortgage, especially the 2.1 million whose existing fixed-rate deals are due to end between now and the end of 2024.<\/p>\n<p>It\u2019s going to be a tough two years, and while the situation is forecast to improve that depends on global energy and food prices falling back towards more normal levels, which in turn rests on geopolitical tensions easing.<\/p>\n<h1><strong>The economic game has changed<\/strong><\/h1>\n<p><em>By <a href=\"https:\/\/www.open.ac.uk\/people\/as23764\">Alan Shipman<\/a>, Senior Economics Lecturer<\/em><\/p>\n<p>The economic rules of the game have changed again. After more than half a century of leaving the \u2018supply side\u2019 to private enterprise, subsidising only healthcare and education, the government used vast sums to rescue the financial sector in 2008, and since then we\u2019ve grown used to public money flowing in whenever the private sector stumbles.<\/p>\n<p>The Covid-19 furlough scheme seemed the ultimate confirmation, when Rishi Sunak became paymaster to large swathes of industry at an Exchequer cost of \u00a370 billion.<\/p>\n<p>By the time he became Prime Minister, the government had launched an even more lavish support act, capping everyone\u2019s winter fuel bill at a projected cost of <a href=\"about:blank\">\u00a389 billion<\/a>. But now the state as universal backstop has reached a limit in the UK.<\/p>\n<h2><strong>What we\u2019ve been accustomed to in the past<\/strong><\/h2>\n<p>After 1945, successive governments viewed their role as keeping conditions stable on the demand side \u2013 spend more and tax less when an economic slowdown threatens or apply the fiscal brakes if excessive expansion sends inflation too high. There was a safety-net for vulnerable households, but no blank cheque for business.<\/p>\n<p>Kwasi Kwarteng was following convention with his tax cuts because widening the deficit is the traditional response when recession is forecast.<\/p>\n<p>When that exploded, evicting him and Liz Truss from Downing Street, it exposed an uncomfortable truth: there really are limits to the amount of demand a government can inject via its budget, if there\u2019s no clear plan for increasing supply.<\/p>\n<h2><strong>History means there\u2019s not much left in the tank<\/strong><\/h2>\n<p>The public purse was stretched so thin there\u2019s no money left for stabilising demand, so Jeremy Hunt was forced to travel in the opposite direction &#8211; his \u00a355 billion budget will drain more demand from the economy and deepen the recession.<\/p>\n<p>And because it will deepen the downturn, we can\u2019t be certain that this new austerity will appreciably reduce public debt in proportion to GDP.<\/p>\n<h2><strong>A squeeze on real wages \u2013 only way out<\/strong><\/h2>\n<p><a href=\"about:blank\">Modern Money<\/a> advocates believe this is an over-reaction and that the previous expansionary budget would have worked if linked to clearer plans for inflation reduction and longer-term growth.<\/p>\n<p>But the financial markets have a point. With double-digit inflation, widespread labour shortages, stagnant productivity and a record deficit in external trade, extra borrowing needs can now only be met with a much higher interest rate, to protect against the inflation that it\u2019s likely to fuel.<\/p>\n<p>So, the near-costless borrowing that shortened the 2008 and 2020 recessions is no longer an option for the UK in 2022. The already long-running <a href=\"about:blank\">squeeze on real wages<\/a>, which may eventually boost demand via export competitiveness, now appears the Chancellor\u2019s only way out.<\/p>\n<p><em>Picture credit: Pres Panayotov for Shutterstock<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By Jonquil Lowe, Senior Economics lecturer, personal finance Leaks in the run-up to the Chancellor&#8217;s Autumn Statement primed us all to expect the worst, but his announcement was surprisingly upbeat. It included: Spending increases to protect public services Further help for all with energy costs, a repeat next year of targeted cost-of-living support And assurances [&hellip;]<\/p>\n","protected":false},"author":18,"featured_media":22462,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,15],"tags":[858,869,1525,1640],"class_list":["post-22459","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-arts-social-sciences","category-society-politics","tag-faculty-of-arts-and-social-sciences","tag-fass","tag-news-home","tag-ou-home"],"_links":{"self":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts\/22459","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/comments?post=22459"}],"version-history":[{"count":0,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/posts\/22459\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/media\/22462"}],"wp:attachment":[{"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/media?parent=22459"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/categories?post=22459"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.open.ac.uk\/blogs\/news\/wp-json\/wp\/v2\/tags?post=22459"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}