Autumn Statement: Crunching the numbers

There will be a swirl of numbers flowing out of the Chancellor's Autumn Statement. As ever, when the Treasury spews out a huge amount of information in a short period of time it will be hard to work out quickly just what is going on.

So ahead of time, here are some things that we will be looking out for, with some rather important caveats and a big dollop of guess work.

It is a political statement so there are bound to be some surprises.

The Chancellor is likely to cancel the planned 3p rise in fuel duty which will please some of his backbenchers and consumers.

But in the big picture, there are at least three major questions that we will be trying to answer once George Osborne has given his speech.

Chancellor George Osborne leaves No11 Downing Street Credit: Stefan Rousseau/PA

1. Will the Chancellor have to admit he has missed his targets on closing the gap between what the Government spends every year and what it takes in taxes (the deficit)? And will Mr Osborne have to give up his other big political target of paying down the debt?

His promise was not actually to cut the debt by 2015, but to reduce its size as a share of the national income by that year.

With the economy weaker than he had hoped it is highly likely, although not certain, that he will have to take the political hit and admit the Government is not on course to keep these promises at present.

There are a range of estimates but the respected Institute for Fiscal Studies (IFS) suggests the deficit may be about £13 billion above what was forecast.

Remember, despite all the rhetoric about getting debt down the total debt is still going up and will do for years. In fact, according to our ITV News poll, only 6% of people realise this.

A larger deficit than was forecast is likely to mean more belt-tightening all around Credit: Gareth Fuller/PA Wire

2. How will the cuts that have already been announced shake down?

Mr Osborne has already sketched out extra cuts, like the further £8 billion squeeze mentioned in the March budget. But he is yet to detail where the axe will actually fall. We should get some more details on specific cuts.

The Government is trying to walk a fine line between taking more cash from welfare spending and making the wealthier pay more. It has already announced another £5 billion of cuts from Government departments (aside from health and overseas aid) to be shifted to spending on schools and infrastructure like roads.

But this does not change the spending totals, and won't kick in until the financial year 2013-14, so it is hard to see how it will make much impact on the economy in the short term.

The Government wants to spend more on building schools Credit: ITV News

3. How much bigger is the black hole, so how much longer will the cuts have to go on?

The economy's performance has been so weak, the recovery so elusive, that to have any hope of sticking to his plan the Chancellor may have to say that cuts will go on for another year.

Reductions in spending have already been pencilled in for up to 2015-16 and 2016-17, but Mr Osborne may concede that belt-tightening might have to go on for another year, again with a guess from the IFS of another £11 billion in tax rises or welfare cuts.

Further cuts to welfare could be in the pipeline Credit: Danny Lawson/PA Wire

The way in which the independent number crunchers - the Office for Budget Responsibility - judge the problem will also be critical. In particular, whether the bigger black hole is a result of an economy that is more sluggish than hoped but will bounce back soon, meaning that the gravity of the situation is temporary. Or if the hole in the books is permanent, the economy less healthy forever, in which case the Chancellor has a much bigger problem on his hands.

If it is temporary, it is described as 'cyclical'. If permanent, it is known as 'structural'. Expect to hear both of those terms bandied around a lot. A 'cyclical' deficit disappears naturally when economies get back to normal. A 'structural' one doesn't go away even when the economy is at full pelt.

We don't really know yet whether, in a post-recession world, we will have a flatter economy for good or if the recession changed our 'normal' forever.

London's financial district Credit: Dominic Lipinski/PA

There are also some very important caveats that could make a big difference to how the numbers look:

  • The numbers will look better for the Government because of a temporary boon from the transfer of the Royal Mail pension fund. This was already announced in the Budget in March but will artificially make the borrowing figures look better than they are.
  • The Bank of England has raised eyebrows by handing £37 billion from Quantitative Easing to the Treasury. There is a lot of debate about whether this was the right thing to do and the effect this will actually have on the sums. Again, it may well make things look better than they actually are.
  • The nasty remnants of Bradford and Bingley and Northern Rock were reclassified in September as central Government bodies. The Office for National Statistics has already said that this will increase the Government's level of debt.