London Briefing:This time last week British chancellor of the exchequer George Osborne was hailed a hero for his coup in securing the services of highly-regarded Canadian central banker Mark Carney as Sir Mervyn King's replacement as governor of the Bank of England.
But a week is a long time when you’re teetering on the brink of a triple-dip recession and unless he has an equally impressive trick up his sleeve today – unlikely – the chancellor’s autumn statement will plunge him back from hero to zero status.
The rosy glow for Osborne over the Canadian central banker’s appointment was already beginning to fade, with even those most effusive in their praise a few days ago now wondering if Carney may simply be too good to be true.
That fear was fuelled earlier this week by economist and former Bank of England monetary policy committee member Adam Posen, who warned that reforms to the financial system would put too much power in the hands of the new governor.
“You have a guy, irrespective of his individual traits, who has been wooed outside the interview process, got to negotiate his own pay packet and be told by everybody that he is wonderful . . . any individual given that much power . . . what’s going to happen?” said Posen.
Austerity strategy
The chancellor has already made it clear he will not deviate from his much-criticised austerity strategy when he delivers his autumn statement in the House of Commons at lunchtime. But he has yet to demonstrate just how the fragile British economy can be returned to growth.
Having endured a double-dip downturn, there are fears that a dismal fourth quarter will push the nation into its first triple-dip recession since records began six decades ago.
Osborne will kick off his statement with reduced growth forecasts from the office for budget responsibility.
In the March budget the office forecast growth of 0.8 per cent this year, rising to 2 per cent next year and 3 per cent by 2015. But these are certain to be cut, with a contraction in prospect this year and perhaps 1 per cent growth next year and no more than 2 per cent the following year.
Central to the autumn statement will be the chancellor’s deficit forecasts. Osborne has admitted that cutting Britain’s large deficit is taking “longer” than planned, although he did not specify how much longer. His self-imposed fiscal rules are to eliminate the structural deficit over the next five years and to reduce debt as a proportion of GDP. But Britain’s lower-than-expected growth and reduced tax receipts will leave Osborne flouting his own rules and the City will be looking for more guidance on just how big a miss the government expects on its deficit and debt reduction targets.
The ratings agencies will be paying particularly close attention to this passage of the speech. If they don’t like what they hear, Britain’s coveted triple-A credit rating could well come under threat.
Plugging the gap
The Institute for Fiscal Studies warned last week that the government may have to extend the squeeze on public spending until 2018 to plug the gap in tax receipts and that Osborne may have to find another £11 billion (€8.4 billion), either from tax increases or spending cuts, unless the economy improves.
Huge cuts have already been made to the welfare budget and benefits are likely to be targeted again today. But Osborne will say it is not just the poor who are feeling the pain. By further cutting the tax-free amount the wealthy can pay into their pensions, he hopes to raise almost £2 billion. We can also expect the traditional “crackdown” on tax avoidance – by the traditional £10 billion.
There should at least be some good news for motorists, with Osborne expected to defer the 3p rise in fuel duty due to come into effect in January.
That aside, there’ll be precious little good news to be had today.
Fiona Walsh writes for the Guardian newspaper in London
