The UK’s economic recovery will not provide a pot of money for tax sweeteners in the Autumn Statement, which is to be made on 4 December, George Osborne told journalists, saying he was “far from feeling the job is done”.
Speaking on the fringes of the International Monetary Fund meetings in Washington, the chancellor was relieved that, for the first time in almost three years, the UK has not been a focus of criticism.
His position is part of the Conservative party’s new political strategy of arguing that the economy is not “out of the woods” yet, in an effort to dissuade voters from supporting Labour.
The chancellor’s stance is notable because in the past two years the Autumn Statement has contained more tax and public spending measures than the annual Budget. These were forced on the government by steep downgrades in economic prospects by the independent Office for Budget Responsibility. The government has had to extend the period of austerity three years to 2017-18.
But Robert Chote, chairman of the OBR, has already indicated that on December 4 he will be revising up the UK’s official growth forecast from 0.6 per cent in 2013 and 1.8 per cent in 2014.
The IMF this week raised its predictions to 1.4 per cent and 1.9 per cent respectively and many independent forecasters have made significantly higher estimates for next year, mostly above 2 per cent.
Asked how he would spend higher-than-expected tax revenues, Mr Osborne said, “I would remind everyone that I sit round the table of the G20 with one of the highest deficits and that Britain continues to have some very serious public finance challenges.”
“We demonstrated with our recent disposal of the Lloyds shares that, where we’ve got resource available, we’ve got to make sure we are doing what we can to reduce our deficit and debt,” he added.
It is not yet clear whether the OBR’s deficit forecasts for 2013-14 will be much better than it expected in March, because underlying growth in tax revenue has remained weak this year, increasing at an annual rate of only 2.5 per cent in the first half of the financial year compared with 2.3 per cent forecast in March.
Even if Mr Chote raises his forecast for tax revenues for the following year, they will not improve the underlying picture of the public finances, unless the OBR also declares the faster growth to be something more than a cyclical upswingthat is earlier than expected.
The chancellor also wanted to stress the difficulties in the international economic outlook, even if the US resolves its budget dispute without defaulting.
“I am very far from feeling that the job is done,” he said, adding, “we are in the early stages of recovery. There are lots of risks out there in the world and we have to absolutely stick to the course we have set.”
Mr Osborne also gave a staunch defence of the Help to Buy mortgage subsidy scheme, launched this week. He said he was keen that the Bank of England was watchful in case a housing bubble developed.
But not everything went the chancellor’s way in Washington. In a public seminar on Thursday, Christine Lagarde, IMF managing director, used the chancellor’s phrase that many economies were “turning a corner”. When she came to list the ones she had in mind, she mentioned the US, Japan and the eurozone, but not Britain.
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