Will this Autumn Statement help win votes?

Thumb_richard-edgar

This week's Financial Statement will mark the first time the Chancellor can report on an improving economy that doesn't require yet more austerity.

The political pressure to deliver some help to ease the squeeze on household finance will be matched, I'm told, by tax raising on "rich people and unscrupulous businesses" so expect the overall statement to be fiscally neutral.

This is crucial, no matter what the headline-grabbing measures of the day, a fiscally neutral budget has in effect changed nothing in the course set for the economy.

Britain's economy is getting better but is far from normal health and Osborne has no room for largesse.

He will make great play of the fact that he's stuck to his guns and is being responsible while Labour would be profligate.

The Chancellor can report on an improving economy that doesn't require yet more austerity for the first time. Credit: PA Wire

The economy has accelerated remarkably since the Budget in March.

The OBR, which spent he first years of it existence having to revise down hopelessly optimistic forecasts as things got worse and worse, will now have to revise upwards the forecasts it made eight months ago which look very out-of-date.

The question is by just how much has its measure of the UK's prospects improved.

At least expect a doubling, if not more, of it's forecast for 2013 from 0.6 per cent growth.

However, it may be more cautious than many expect about further years reckoning that the growth we're seeing now is what otherwise would have happened in 2014, 2015 and beyond.

Furthermore, the recovery is unbalanced (fuelled by consumer borrowing and spending rather than business investment and trade) which makes it less reliable in the short term.

The economy has accelerated remarkably since the Budget in March. Credit: PA Wire

Still, a stronger economy now means the government has been raking in more income in the form of taxes than it expected to.

As the number of unemployed people falls it is spending less on benefits.

That has eaten away at the annual deficit, the borrowing Britain adds each year to the national debt.

In March the OBR expected this to be around £120 billion for 2013/14 but the better numbers on growth mean it may instead be closer to £105 billion.

That's good but remember (don't we all) that in his first budget three years ago, Osborne forecast borrowing of £60 billion in 2013.

We're still way off course.

Read: British economy sees fastest growth in 3 years

If Osborne moved the goalposts on his target to eliminate the deficit, he is on track to strike a goal by doing so over the next five years but he will again miss the secondary target of beginning to reduce the overall national debt as a proportion of GDP by 2015/16.

I gather that the Chancellor will be cautious on the growth and borrowing figures, emphasising the difference between cyclical growth (which is good and getting better but borrowed from 'tomorrow') and structural growth (which is genuine improvement in the capacity of the economy to grow and may not be getting better - the Treasury was briefing about this over the weekend).

This goes back to the OBR's judgement about how much improvement we can expect in years to come.

The upshot is the Chancellor can be pleased with the improvement so far which is largely to do with the Funding for Lending Scheme (partly his work) and the cooling of the eurozone crisis (nothing to do with him) but he can't relax yet.

The Chancellor will put the best spin on some eye-catching measures Credit: PA Wire

Nevertheless, politics demands something for voters and the debate in recent weeks has been around the cost of living.

We already know the conference season promises which the IFS has costed:

  • Universal free school meals for the first three years of primary school - £600 million a year
  • Transferable income tax allowance for some married couples - £700 million
  • Cancelling the fuel duty increases planned for September - £700 million
  • The cost of setting up the Help to Work scheme for the long-term unemployed - £300 million
  • (An aspiration to increase the income tax threshold to £10,500 - £1,000 million ... NB this is a bit more vague than the other promises)
All infant school children will receive a free school meal from next September. Credit: PA Wire

Read: Free school meals show Lib Dems' influence in the Coalition

He will have to find ways of funding these plus the energy bill changes and any possible loosening of business rates for smaller companies and other giveaways but raising the money elsewhere.

Watch out for a clampdown on tax "planning" and rich people's assets - especially if they're foreign and own mansions.

He may not be able to resist meddling with pensions again, lowering the tax-free contributions limit.

This is a risky move as he's getting closer and closer to hurting middle earners. ISA allowances may be capped.

All in all, a tricky balance but the Chancellor will put the best spin on some eye-catching measures while emphasising how prudent he's being - in effect proving the Statement changes little for the economy while hoping to win the votes of some of the electorate.