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Osborne’s Autumn Statement

George (ne Gideon) Osborne Baronet is the British Chancellor of the Exchequer – finance minister to everyone else.   Every year, we have a budget in March but recently  it has become the habit of Chancellors to make an Autumn Statement which is an update  – and sometimes the opportunity to test an idea.

So what did George say today?  Well to start with, much the same as last year – it will take another 5 years to sort out the accounts and, far from balancing the books by 2015 as promised in 2010, it will take until 2017/18 to get things straight.  By 2015, he will probably be promising good cheer by 2020.  And of course it is now all the fault of somewhere else – the Eurozone in particular.

Now I don’t want to be unfair.  When Osborne first announced that he wanted to balance the books by 2015, reducing public expenditure by 25%, many were incredulous.  This was far more than the cuts of the 1980s which led to over 3 million unemployed and riots in the streets.  I estimated it would lead to at least 750,000 extra unemployed, mainly from the public sector.  In fact headline unemployment has not increased by that much so far.   Why?

There has been an upsurge in small businesses creating some new jobs and this is to be welcomed.  Our fascination with online trading and business has kept some people afloat – yet of course closed other businesses.  We will see whether we have gained or lost.  And whether Messrs Amazon, Google etc will pay the VAT and corporation tax they should out of this online haven – there’s quite a few billion adrift.

But the big cuts haven’t hit yet.

Unemployment had been steady at about 5.5% from 2001 until early 2008, after which it rose to about 8% by autumn 2009, peaked at 8.4% early this year and has been sliding a bit down since then.  It is now about 7.8% (2.5 million out of about 30 million people of working age in the UK).  The actual number claiming welfare benefits is a lot lower than the unemployment rate at about 1.6 million – many can’t claim as there is a working partner.

What this hides is three things:

  1. There are about 3 million people considered to be underemployed – they want to work more.  This has increased by about 1 million since the start of the recession, half in the last two years.  Of course as far as the Chancellor is concerned, they are not claiming welfare benefits so they are not important.  I would include temporary, part-time and other categories here.   Counting part-time work as 50% suggests that the true increase has already been in excess of a quarter of a million full-time equivalent.   So far.
  2. There are about 2.6 million claiming Incapacity Benefit or Employment and Support Allowance.  Reforms including tougher medical tests and time-limiting of non-means tested benefits are rolling out which means that this number will be reduced but what will happen to the people?  Some will manage to enter the labour market, it is true, but it is estimated that about 600,000 will fall out of any benefit completely and the claimant count will increase by some 300,000.
  3. There is a large underclass of economically inactive people – students, carers and the like – who do not figure in either category.

In sum, this lot adds up to something like 7 million non-productive people.  Not so rosy, is it? 4.2 million on some sort of benefit, each costing the exchequer £20k ($32k) or more in benefits and lost tax.

Now don’t get me wrong – I believe people should work.  I also believe that most unemployed people desperately want a job.  But they need to be helped into work and the system as it stands is very inefficient.  Earlier this year our son Ewan posted a heart-felt plea on this blog after nearly 4 years without a job.  Fortune has smiled on him and he is one of the (few) successes, having found a job with the Cooperative Bank – one of the most respectable employers. The picture painted by Osborne of the person going to work while his (or her) neighbour turns over in bed is not fair and not true.  In his Tatton constituency (one of the richest areas in the UK, even if it is in the north), the neighbour will probably manage a round of golf in the afternoon after a late breakfast.

But there are people who, through no fault of their own, have medical or mental problems, including those who have served their country in the military yet get a very raw deal.  Are these people, some presently on IB or ESA to be discarded?

It will reduce help the Exchequer but at what cost?  We have already got beggers back on the street, and families will find living even harder with utility bills soaring.  Who suffers?  Children, the elderly and those who are disabled or frail.  Children are our future.  Family is the future.  You can depend on volunteers for short term help as the Olympics showed very effectively.  My old ex-Army history teacher used to say, one volunteer is worth ten pressed men – but volunteers can walk away.  And do.  In the end you have to fund the resources required for society properly because there is such a thing as society and we are all part of it.

So is Osborne’s statement a success?  It has been viewed as slashing the welfare bill by limiting increases to 1% which will squeeze families hard.  He also slashed the amount the uber-rich can stash in their pensions boo-hoo – I am sure they will find a way round that.    But there was little to do with the growth that we need in the statement.  Yes he found some money for schools, a little for science and increased investment allowances for small businesses (that doesn’t cost anything).  Osborne undoubtedly inherited a big problem.  The previous government’s spending had been careless in places but it was the banks which tipped us over the edge.  Neither of these causes were down to the man, woman or child in the street yet they are the ones picking up the tab.  Thanks a bunch, George.

21 thoughts on “Osborne’s Autumn Statement”

  1. I stopped following the UK economy when I left three years ago. I still think the country is doing pretty good compared to the rest of Europe. The Olympics did a great job in lifting up moods and bringing a bit of economic dynamism. On the plus side, mortgage rates have rarely been lower!

    • @Pauline – the grass is always greener on the other side of the fence, isn’t it?  I am sure that all countries have their problems but ours are compounded by (a) a few large badly behaved banks which tipped us over the edge and (b) a government which sees the people – well the poor anyway – as the enemy,   The Olympics was brilliantly done for sure and gave a nudge upwards but the economic legacy will I think be short-lived.  Still we may have a royal baby on the way – something to look forward to….

  2. I wonder how these austerity measures will affect the economy during these critical next few years. The U.S. is suffering a dwindling standard of living. I can not believe the number of beggars cropping up at each corner of our city. It is disheartening how limited and rare that prosperous employment opportunities are becoming.

    • Hi @Jen – gr82cu.  We used to have beggars on the streets of Manchester in the 80s and 90s.  I had a friend who worked at the Night Shelter and it was always crowded.  These disappeared largely in the noughties as New Deal and other things got to work and unemployment dropped from 8.5% to 5%.  It is frightening how quickly this has been reversed – beggars are back and it is so sad.  But it is not necessarily employment that is needed but work.  One of the good things about Britain is that we have turned from a nation of shopkeepers into a nation of online businesses – I think it is the most online country in the world in trade (certainly in Europe) .  So perhaps this will rescue us….

  3. The problem with these kinds of cuts in services is you don’t see the consequences for years later.  California reduced mental health services and more mentally ill people ended up on the street.  The real cost to society is slowly being felt.

    • Certainly true, @KC and hostility to public service doesn’t help.  It has never ceased to amaze me that governments are prepared to put loads of relatively low-paid people out of work to save one budget, the cost of which is picked up by the benefits department.  So the taxpayer ends up paying the same amount (or pretty nearly) for no work at all, let alone the isolation and despair that comes to the people involved and the loss of service to society.  Despite claims to the contrary at election time, health services here are being cut, rationed etc.  And this is even more true in mental health which is so counter-productive as people end up on the streets or in prison (the most expensive of hotels of course).  As you say, the true cost is not seen for some time as people just manage to ‘cope’ for a bit.  Daft.

  4. Agree with your analysis and most of what you say. There is one point on which I’ll argue – the limit to how much one can put in a pension affects not only the ‘super rich’. You know that being super welthy has become one of my goals, but I am not there yet (in, five years, the Universe willing). But this pension thing is likely to affect me as my pension is final contribution one (I am almost at the border of income at which tax will kick in and you well know how much I earn – decent but not overly generous).

    • @Maria – most pension contributions are something like 5-10% of salary before tax.  The annual allowance has been cut from £50k to £40k so, unless you decide to put in extra (which is possible up to the salary itself I think) this would ordinarily only affect people on £400k or more.  These are the levels under which contributions will attract full tax relief – you can put more if you want.  We look forward to the day when this change will affect us but Osborne estimates this will only affect about 1% of pensions.  What it will do is to stop people on £100k say putting all their salary into a pension pot a year before they retire and getting a tax contribution, which is one of the scams.  This way, the most they can add is £40k including their regular contributions. 

      The lifetime allowance for pension savings will also be reduced from £1.5 to £1.25 million but in a final salary scheme, you don’t have a specific savings pot so I don’t know how that is interpreted.  


    • Can’t people who are affected by the pension allowance going down put their savings into an ISA ? I know it’s not the same but it seems as an alternative…. 

      @John – fantastic summary of the autumn statement btw. 
      All the best,

  5. I certainly don’t think the problems you’re experiencing are unique to the UK. Greed and materialism is abound in all parts of the world which has increased the willingness to take risk but lots of banks and corporations. Those risks and greed caught up to the people and banks here (US) and we also suffered the consequences. While we’re looking for more government programs to help bail people out, we’re continually going into debt to do it with no solution on the forefront. Unfortunately you can’t make everybody happy and the government can’t support everybody out there. I’d rather be underemployed than unemployed completely while taking handouts from the government.

    • Hi @Jason – thanks for dropping by!  Sure it is better to be underemployed than unemployed but both are a waste of people’s abilities and talents.  We spend a lot of time educating folk – and then they can’t find anything to do with all their knowledge (at least immediately anyway).  I don’t think Osborne has helped too much there.  You are right – our problems are not unique but that doesn’t diminish them either!

  6. Osborne today made his cheap jibe about the unemployed leaving their curtains closed till late in the morning.

    1.  If you do not have work to go to, why should you get up in the dark and increase your utilities bill?

    2. We have neighbours who are Social Workers, Teachers, Plasterers, and Librarians.  They leave home before sunrise and get home after dark in these months of the year and leave their curtains closed from Sunday evening to Saturday morning – as we did before we retired.  It kept the heat in and saved on utility bills.

    I suppose he doesn’t live in an ‘average’ neighbourhood?

  7. I’m not sure about things over on your side of the pond, but over here, it is virtually impossible to get an entry level position any more. If you can’t already do the job, you can’t get the job. That’s one of the primary reasons why I’m still working unskilled, seasonal jobs instead of actually starting a career.

    • Hi @Edward – it’s certainly difficult, however much education you have.  

      Employers are suspicious that the economy won’t pick up so are not prepared to take the gamble with people with people with no experience.  So they struggle on trying to get their staff to work extra while the unemployed can’t get a chance.  

      I understand both positions and it is all to do with the confidence that has been shattered on all sides.  I don’t know how long it will take to fix.

  8. I’m glad to see politics are alive and well everywhere, as are cheap shots by government officials. It sounds like he was placed in a difficult situation. IF cuts have to be made, there will be people no matter where you cut who can cite a study showing why it won’t work and who will argue for another course of action. After the US election, I’ve had my fill of watching the sausage get made for awhile….

    • Sure it’s alive @AJ – Osborne’s statement was full of suggestion and innuendo about ordinary people and their lives.  He appears to think that everyone lives in a single family unit, a couple with children.  In fact about 25% of families in the UK are single parent families, others can be complex mixtures so they don’t fit into his boxes.  While you are right that you will always get some section or other of society complaining, taxes and cuts have to be fair and be seen to be fair.  Given that taxes for the better off (income > £150k) will be slashed from next April, cutting welfare benefits does not seem to be a good idea.  And he really didn’t do too much for growth which is the main way out of the deficit.  You can’t promote growth when there is no confidence that growth will be sustainable so people end up staying unemployed.  

      On the other hand having seen quite a bit of your elections from this side (the BBC had dozens of reporters everywhere it seemed), I can understand you getting fed up with it all!

  9. There must be a way to do job assistance *better*.  Simply paying a dole for people to stay home and watch the telly is long-term counterproductive.  Although I lean libertarian, the WPA in Roosevelt’s time did get the unmployed out and about and taught them some skills.

    • I do agree @101C but just getting people to sweep the streets or dig holes in the ground is no solution – most such work is correctly automated now.  In the end it takes intelligent matching of individual interests and skills with the requirements of the labour market.  This was what was so impressive about the Cooperative Bank and our eldest son but why did it take 4 years to get to that point?


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