An Edelman analysis - Autumn Statement 2013

AUTUMN STATEMENT 2013 Overview

Sarah Richardson Director

Whisper it – but the economic outlook is improving and today the Chancellor should be acknowledged for holding his nerve. Gone is the caustic cocktail of downgraded economic forecasts and austerity measures. Osborne knows the next election will be fought around the best ways to support struggling consumers who are still seeing prices rise faster than wages. The outcome will depend largely on the Government‟s ability to demonstrate real improvements in standards of living, versus Ed Miliband‟s effective campaign on the “cost of living crisis”. After yesterday‟s excitement around energy strike prices and the National lnfrastructure Plan, today‟s statement was a bit of an anticlimax. Green levies, once a symbol of Dave‟s brand of Conservatism, have been scaled back to reduce the pain of rising fuel bills. The cap on business rate increases might not go far enough for Vince Cable (who was advocating root and branch

reform) – but it will help high streets and business growth. Scrapping NI payment for workers under 21 should, in theory, help tackle youth unemployment. And then, at the eleventh hour, the Chancellor trailed he was raising the retirement age. New spending commitments include free school meals for the first three years of primary school, championed by the Lib Dems, is to be paid for by the existing education budget. The transferable income tax allowance for some married couples, costed at £700 million, makes good on a Conservative manifesto commitment and a PM priority. More people will care about Osborne cancelling the fuel duty increases then they will about tax discs going digital. Even with a new capital gains tax on overseas buyers and a clampdown on tax avoidance, this statement simply nudges the needle towards reducing the national debt. Rather it‟s a statement of political intent, delivered with a manifesto in mind.

Political Reaction Jim Pickard Financial Times Chief Political Correspondent “Autumn statement summarised: „The only way is up. Apart from our trillion-plus debt, which might now peak in 15/16 instead of 16/17‟” Nick Robinson BBC Political Editor “The political framing of the Autumn Statement is clear: „job not yet done… more difficult decisions to make” Ed Balls Shadow Chancellor “Under this Chancellor and Prime Minister living standards are falling year on year. People will be worse of in 2015 than they were in 2010” Tim Shipman Daily Mail Deputy Political Editor “General election just got more interesting. It's Oz: 'Our plan is working, let's keep going' v Balls: 'People will be worse off in 2015‟ Jonathan Loynes Chief European economist at Capital Economics “For now, though, Mr Osborne has played Scrooge rather than Santa and left the onus squarely on the Monetary Policy Committee to keep the economic recovery going” Autumn Statement 2013

The Headlines GROWTH FORECAST

2.4% for 2014

£375bn

INFRASTRUCTURE SPENDING worth of projects by 2030 GOVERNMENT BORROWING

£111bn

BUSINESS RATES RISES

2%

RETIREMENT AGE

70 years old

TAX AVOIDANCE CRACKDOWN

In 2013-2014

cap on business rate rises

the age of retirement from 2060

£9bn

to be raised over the next five years from new tax avoidance crackdown

Sector Perspectives ENERGY

Overview

Jessica Lennard

Labour‟s energy price freeze promise shifted political debate from the economy to the cost of living. Under pressure from right wing Conservatives, the Government‟s answer, confirmed today, is to cut socalled „green levies‟, allowing energy companies to lower bills by £50. Ironically, the cuts focus on energy efficiency which the Government acknowledges is the most effective way to bring bills down permanently. Renewables subsidies increased for offshore wind and decreased for onshore, while a significant shale gas tax break from July 2013 was also confirmed. New measures extend the Energy Company Obligation (ECO) home insulation deadline by two years and reduce the emissions reduction requirement by 30%. The previously regressive Warm Home Discount to tackle fuel poverty will now be funded through general taxation. Transmission firms have been asked to reduce cost increases by 20%; and extra cash for home insulation will be funded through another tax avoidance crack down. The measures have met with criticism in some quarters. Labour claims the energy companies have been let off „scot free‟, whilst consumer groups expressed dismay that cuts fell on ECO - „the only levy that actually helps consumers‟. Unions and the insulation industry have also warned the cuts could cost thousands of jobs. The general outcome appears to be a victory for energy companies: while profits remain untouched, the Government appears willing to cut levies to avoid further prices rises before the General Election.

PROPERTY

OverviewBenedict McAleenan Property and construction have been tied into the recession in a Gordian knot. And, like the Gordian knot of legend, many think it‟s been disentangled only by trickery through Help to Buy. But the Chancellor can claim to have loosened things enough to shake the industry back into life. Indeed, it contributed massively to the increased revenues that allowed him to announce a lower deficit of 6.8% for next year. However, Osborne knows Help to Buy isn‟t forever. The Bank of England has already redirected its Funding for Lending scheme away from the housing market and towards SMEs. The Chancellor also wants to shrug off the idea of a housing bubble; by highlighting the Bank‟s authority to prevent asset bubbles and removing the foreign owners‟ CGT exemption, he is moving the responsibility and the blame away from the Treasury. Most importantly though, the Chancellor is trying to help local and regional authorities to increase supply at the affordable end of the market. £1bn in loans to help developments in the north is evidence of this. Furthermore, a higher borrowing cap means councils can borrow more against their housing stock. It builds on the success of the Coalition‟s HRA reforms and will be welcomed by industry. In the same vein, a strategic selling off of valuable social housing stock, so long as receipts are properly ringfenced, could be very positive to the supply of new homes.

INFRASTRUCTURE Jonathan Mitchell For the infrastructure sector, the main announcements of interest came yesterday as Danny Alexander and Lord Deighton announced the publication of latest National Infrastructure Plan (NIP). The Chief Secretary claimed that this update was “the most comprehensive” ever produced, creating much greater visibility of the infrastructure pipeline and demonstrating the Government‟s ongoing commitment to infrastructure. The Government has been pressed from all sides to provide clarity and a more long-term approach to the projects outlined in its Plan, and this latest iteration does move some way to providing this. The infrastructure community, however, has given it a cautious welcome as a positive first step towards a more robust delivery schedule, but the plan is not in itself seen as sufficient. There is clearly still divergence between what industry see as a pipeline of work they can invest and plan against, and what the Government does. Similarly, the insurance companies commitment to invest £25 billion is a very welcome headline for the UK infrastructure market. Much was also made of the creation of the 2011 Pensions Investment Platform (PIP) which has yet to invest any money in any projects. Furthermore, while many of these announcements are good and sensible for the future, we should not expect any of them will have any impact on getting spades in the ground any time soon and certainly not before 2015.

FOOD, DRINK AND RETAIL Anthony Marlowe

The Food, Drink and Retail sectors will broadly welcome the direction of travel outlined in this Autumn Statement, though there will be calls for the Chancellor to be more ambitious in next year‟s Budget. Flagship policies such as the cap in Business Rates increases at 2% will be fully supported by the major retailers, who note that the current system has resulted in the UK having the highest business property tax in Europe. However, industry will be pressing the Treasury to make good its offer to supplement the cap with a wider review of the current Business Rates system. Because this sector is the UK‟s largest employer, with high numbers of young employees, the introduction of National Insurance relief for under 21 year olds will also be welcome. The freeze on fuel duty will be similarly supported, as the sector continues to strive to provide its customers with value for money against the backdrop of rising living costs.

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