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20 Nov 2015 12:00pm

What to expect in the CSR

Next Wednesday sees the double-whammy of the Autumn Statement and the government’s Comprehensive Spending Review (CSR), an event guaranteed to keep economists, accountants and businesses awake the night beforehand

As well as allowing the chancellor, George Osborne, to wax lyrical about fiscal policy, the CSR will also offer the chance to see where departmental cuts are going to fall heaviest.

Recently, Osborne confirmed that he had reached agreements with 11 governmental departments with regards to their spending budgets. Across the whole of government, reports suggest that total spending will be reduced by 24% over the next four years. However, Osborne is yet to finalise any deals with the Home Office, the Department for Business, Innovation and Skills (BIS), or the Ministry of Defence, as well as other big budget ministries.

The Confederation of British Industry (CBI) claimed to find £16.3bn worth of savings that the Treasury could make over the next five years, with former director-general John Cridland urging ministers to be “truly transformational”.

Cridland said, “This time round savings from departments will be a lot harder to come by, as the low-hanging fruit from the last parliament has already been picked.”

CBI proposals include strengthening the government property unit; extending shared service between governmental departments; and NHS productivity improvements.

“Commitments to keep within public spending limits will only be achieved through ambitious reforms,” Cridland continued. “All departments, including those protected by ring-fences, need to be open to new ideas and ways of working.”

Big Four accountancy firm Deloitte said that in delivering spending cuts, Osborne’s room for manoeuvre was “severely limited” by existing commitments.

Ian Stewart, Deloitte’s chief economist, said, “The government has ring fenced around 60% of day-to-day spending, pledging to increase spending in real terms on investment, health, defence and overseas aid and maintain spending on schools throughout this parliament.

“The UK’s budget deficit, though down from its peak, remains high by historic and international standards. IMF data show the UK’s deficit this year, expressed as a share of GDP, exceeding countries such as […] the previously recession-stricken economies of Greece, Italy, Ireland and Portugal.”

However, it might not all be bad news. Deloitte also pointed out that domestic demand remains healthy and tax receipts continue to increase on an improving trend. “Eliminating the deficit requires steadfastness in squeezing spending, reforms to public services and a continued recovery in the private sector,” Stewart added.

ICAEW has warned that the government has had a “lack of significant progress” with reducing the deficit ahead of the Autumn Statement. The Institute called for a review to ensure sustainability remained central to decisions that look to the long term.

“The government is seeing a lack of significant progress on reducing the deficit ahead of the Autumn Statement next week,” said Ross Campbell, ICAEW’s director of public sector policy. “This current trend could prove more problematic ahead for the chancellor.

“Our recent business confidence monitor suggests the economic recovery is slowing which could have an impact on tax revenues, which have been slowing and actually fell back year-on-year in October.”

Autumn Statement predictions summary:

Tax credits, personal allowance and NICs

The chancellor’s plans for a set of cuts that would slash £4.4bn of spending on working tax credits and child tax credits were met with public criticism and were controversially voted down by the House of Lords in late October. However, Osborne is widely expected to push ahead with plans to cut the income threshold for tapering reliefs from £6,420 to £3,850 from next April, following a ‘review’ of his plans.

Devolution

Decentralising power from Westminster to the regions has been a key issue for the chancellor. Expect the much-promoted Northern Powerhouse project to be hailed as an early success, with Osborne announcing further plans to transfer greater powers to additional regions.

Minimum Wage

Following the announcement that there will be a mandatory Living Wage that will mean pay rises for millions, Osborne may reveal further details about how workers will benefit from the increase, in addition to offering businesses details about how they will be affected by the increase to salary costs.

Transport

Having previously cut TfL’s budget by more than £200m, Osborne may again look to reduce the department’s grant by 2020. Earlier this month, the Financial Times suggested potential cuts could be as high as £700m.

Housing

The government has promised 20,000 so-called starter homes to ease the housing crisis. Expect announcements on plans for their development, the Help to Buy ISA, and prisons to be sold for redevelopment.

Pensions taxes

The chancellor may look to cut tax relief for pension savers, who currently pay no income tax on contributions up to the annual allowance o based on earnings (normally £40,000, tapered to £10,000 for high earners). However, Osborne has indicated that any big decision on pensions – like whether the minimum age for liberalisation will rise, and whether ISA-style pensions will be introduced – are very likely to be delayed until the Budget next March, citing the need for further consultation.

Renewable energy and fuel taxes

Governmental support for renewable energy has wavered significantly in the past eight months. Solar and off-shore wind resources face rumours of further reductions in tax reliefs and grants.

Diesel fuel could be set to receive a rise in duty following low fuel prices. Other potential measures could include higher Vehicle Excise Duty rates, a purchase tax on used diesel vehicles, or an increase in VAT for the fuel type.

Claire Lancaster

 Oliver Griffin

 

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