Osborne’s first Autumn Spending Review under a completely Conservative government took place yesterday. Rafts of measures were introduced with some surprising results. The total government spending is set to rise from £756 billion this year to £821 billion in 2020. While at the same time, government spending as a percentage of output will fall from 40% (2010) to 36.5% in 2020. In the next five years the government will borrow £8 billion less than originally predicted in July. George Osbourne put this down to better tax receipts and lower interest payments on debt. Many supporters of the spending review highlight this as the ‘end of austerity’.
George Osborne announced a complete ‘U-turn’ over tax credit cuts. The tax credit cuts, originally planned to start in April 2016, was criticised for potentially resulting in a fall in living standards for the poorest in society. This led to the highly unusual action of the House of Lords to block the proposed cuts from the elected chamber. However, tax credits will be phased out by 2018 and replaced with a system of ‘Universal Credit’ which many believe to be much less generous. A ‘two-child’ limit on child tax credit claims will still go ahead in April 2017.
With security being high on many peoples agenda at the moment, Osborne announced that the defence budget is set to rise to £40 billion by 2020 (currently at £34 billion) and extra funds will be made available to the security services. He further announced that there would be no real-term cuts to the police services. In fact there will be an increase of £900 million in spending by 2020.
The health budget in England will rise by £19 billion to £120 billion by 2020. The NHS is going to receive a £3.8 billion injection next year as part of the £8 billion overall increase by 2021. However, the NHS in England will have to make £22 billion in efficiency savings while the budget for the Department of Health will fall by 25%. Also, grants for student nurses will be scrapped and replaced by loans
The school budget in the UK will be protected with the total education budget expected to rise by £10 billion by 2020. And despite concerns, free hot meals for infant pupils are to remain.
The somewhat unexpected penalty of a 3% increase in stamp duty for buy-to-let properties and second homes however has caused concern for many. This is expected to raise £1 billion in revenue. However, commentators are worried about the impact this will have on landlords who have already been hit earlier in the year and the affect this will have on the property market. Some speculate that prices will increase in the short-term as buyers rush to purchase before the change takes effect in April 2016. Others point to the fact that ultimately it may lead to more sensible pricing without so many potential landlords pushing up prices. However, those who intended on purchasing a property with monies released from their pension may well have to think again.
400,000 new homes are also planned to be built by private developers costing £2.3 billion. Osborne clearly wants to deliver on his vision of getting more people into their own homes and these two measures may well assist many first-time buyers.
Next year the state pension will rise by just over £3 a week to around £119
The UK is expected to grow at 2.4% in 2015-16. The forecasted growth rates for 2016-17 and 2017-18 are 2.4% and 2.5% respectively. Debt as a percentage of GDP is predicted to gradually fall from 82.5% (2015-16) to 71.3% in 2020-21.