Let’s start with the surprises. Chancellor George Osborne has kept a few cards close to his chest over the past fortnight, namely his plans to cap public sector wages. Against a backdrop of mass strikes by unions across the UK, Osborne announced that after the two-year pay freeze, rises would thereafter be capped at 1%. ‘Public sector pay has risen at twice the rate of the private sector,’ he said. ‘We need to make the system fairer to the people who pay their taxes to fund that increase.’ So if you work for the state that is going to hurt.
It’s an interesting time to land another blow to public sector workers. The Chancellor is making it very clear that government will not bow to strong-arm tactics by the unions. His ire was palpable in the Commons today: ‘Once again I ask the unions why they are damaging our economy at a time like this and putting jobs at risk?’ he demanded. ‘Call off the strikes and let’s agree generous pensions that are affordable to the taxpayer.’
State pensions came under scrutiny in Osborne’s statement too. From 2026, the pension age will be increased from 66 to 67, saving ‘a staggering £59bn,’ says Osborne. But the amount paid out to British pensioners is set to rise by £5.35 – ‘the largest ever rise in state pension and proof of our commitment to those who have worked hard all their lives,’ he adds. Contrary to predictions, however, benefits are set to increase in line with inflation.
Other key revelations today include:
The current rate relief holiday for small firms is to be extended to April 2013.
The planned rise in regulated rail fares will be capped at 6.2% - 1% above inflation - in January to help commuters.
A new mortgage indemnity scheme will help up to 100,000 people buy homes with just a 5% deposit.
On to the things we suspected that are now confirmed:
A £400m scheme to kick-start stalled construction projects in England
Return to previous social housing policy that with allow social tenants to buy their homes at a 50% discount
New credit easing programme to underwrite up to £40bn in loans to small and medium-sized firms.
Government plans to pass on the low interest it pays on borrowing to SMEs
Regional Growth regeneration fund to get £1bn in extra funding to help firms grow outside of the south east. ‘Every pound we spend is matched by £6 of private investment,’ says Osborne
In the wake of a raft of green initiatives, Osborne today announces a £250m support package for energy-intensive firms
All the proposed changes to employment red tape are going ahead
No EU transactions tax, which Osborne dubs a ‘tax on pensions, not a tax on bankers’. Instead there will be an increase in bank levy in January
A new £1bn "youth contract" to subsidise six-month work placements for 410,000 young people
£5bn new spending over three years, including £1bn for the rail network
Plans for 35 road and rail projects across England
Osborne is working with pension funds to unlock a further £20bn for infrastructure investment
So, in conclusion. Osborne maintains that paying our way must still be the guiding principle. But this was probably a day that Osborne was dreading because the sand seems to be slipping between his fingers and having Ed Balls, the shadow chancellor bellow at him – "you given us all of the pain and none of the gain" will have made him really smart.
Fiscal virtue which won us the approval of the money markets is not going to be enough to remove us from the mire. In truth our destiny, at least in the short term, probably lies out of the ability of the present government to influence more than at the margin. It is what plays out in Europe over the next two weeks that will see how bad the next year might get.