George Osborne’s Autumn Statement and spending review will seek to show the chancellor delivering a comprehensive plan to balance the books by 2020.
He needs to reshape the public sector and resolve his difficulties over plans to cut tax credits.
The statement is designed to restore his dented political credibility and is likely to have the following themes:
1. The economy has grown in line with the Office for Budget Responsibility’s July forecast, so there are few reasons for the fiscal watchdog to change the broad outlook. Inflation is lower than expected, raising the prospect that the cash size of the economy will expand less than the OBR thought. But productivity growth has recovered, removing one big risk to the forecast.
2. The public finances are still likely to show the public debt burden falling from this year on and recording a surplus by 2019-20, meeting Mr Osborne’s fiscal rules, but with a smaller margin for error than the £10bn he forecast in July. Lower interest rates reduce debt interest payments, offsetting weaker tax revenues and the addition of housing associations’ borrowing and debts to the books.
3. The spending review will remove 5 per cent of day-to-day public spending in real terms from government departments. Because health, schools, defence and overseas aid — three quarters of departmental spending — have some form of protection, unprotected departments face cuts of about 27 per cent. Police, justice and local government have most to fear.