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Autumn Statement 2016: Reactions from Our Panel

Richard Murphy, Professor of Practice in International Political Economy at City University

There were four macroeconomic stand-outs from Philip Hammond’s Autumn Statement today.

1. Philip Hammond is expecting economic headwinds. This was the pervasive underlying, mainly unstated fear that underpinned most of his decisions today. In fact, it was why there were so few decisions in the first place. Hammond clearly fears a Brexit meltdown, and that is why he is keeping all he can in reserve.

2. Growth will be weak at best. This was expected, but even Hammond had to draw attention to the OBR's risk warnings attached to the forecast. And did you notice the talk on inflation? No, nor did I. Maybe that was something he would rather avoid: the fact that it is already unavoidable.

3. Fiscal rules can be abandoned with impunity, as Osborne's were rejected without a backwards glance. Those which will replace them, however, are worse in many ways. First, the books will be balanced, but we don't know when, signalling no end to austerity. Second, debt as a proportion of GDP will shrink. That's a licence for privatisation. Third, benefits will be capped. This is a plan for continued shrinking of the state at cost to ordinary people and the social safety net.

4. The so-called investment plan is peanuts. It appears to focus on those hubs of desperation known as Oxford and Cambridge, and everything else was left to the (very) small print.

Let me now turn to the microeconomic stand-outs.

1. Next year's cruel benefit cuts will continue. And the changed taper on benefits cannot compensate for the failings of Universal Credit.

2. At the same time, the expensive (£6 billion a year) cuts to corporation tax will continue.

3. Small businesses will not reap the benefits of corporation tax cuts. This will be massively divisive in Tory heartlands.

4. Personal allowance increases have little impact on poverty. But in fairness, increases in the living wage will.

5. The change in rental rules looks good, but buoyant rental markets will soon reappear as real rent increases.

6. Was there a sixth point? Hammond’s speech was so bereft of ideas that abolishing the Autumn Statement may be a headline in itself.

But through it all there was one lie: the one about debt. Debt is not £1.6 trillion - it is £435 billion less, because that's how much of the debt the government owes itself, and you can't owe yourself money. But this lie is repeated time and again to destroy the chances of ordinary people in this country, all of whom have every reason to be angry as a result.

Josie Tucker, Senior Policy & Research Officer, Child Poverty Action Group

Reports that the PM had ordered the Treasury to reverse some of George Osborne’s eye-watering cuts to Universal Credit certainly added to the expectation that help was coming to ‘just managing’ families today. Frustratingly for families, however, the Chancellor only offered a first aid kit when major surgery was needed.

Let’s take the example of a single parent with two children, working full time on £7.50/hour (making £13,650 a year), receiving average support for the cost of a 2 bedroom rented home. If it wasn’t for George Osborne’s cuts to Universal Credit, this family would have received £849 per month in Universal Credit if they made a claim from next April, to top up their low wages and help with the costs of children and rent.

The cuts to work allowances, introduced this year, reduce that to £803 a month – a loss of £554 a year. (This family will now see its Universal Credit withdrawn after the first £192 earned each month, rather than £263.)

In April 2017, the first child element in Universal Credit will also be cut, further reducing the award this family could get by £45 a month (£545 a year).

The reduction in the taper rate announced today (from 65% to 63%) will allow this family to keep a further 2p in every £1 they earn above the work allowance of £192/month. For someone working full-time at £7.50 an hour, that’s worth £17 a month, or £205 a year.

All in all, this family’s claim has lost £1,099 a year in cuts, and been given back £205. They’ll still be £894 a year worse off next year than if Universal Credit hadn’t been cut.

Haven’t low earners been helped by the increased minimum wage?

The increase in the minimum wage has boosted the earnings of the country’s lowest earners, but it’s worth remembering that most people haven’t benefited, as they already earn a higher hourly rate.
Even minimum wage workers, who have seen their hourly pay increase from £6.50 in 2015 to £7.50 next year, will not necessarily be better off overall if they make a claim to Universal Credit next year than they would have been in 2015/16, because of the scale of cuts to in-work support through Universal Credit. In many cases, support has been taken away faster than wages have risen.

In 2015/16, a single parent working full time on the minimum wage of £6.50 an hour would have taken home £927.63 a month from work (after tax and NI). If she had two children and lived in an average two bedroom rented home, she would have received £921 per month in Universal Credit.

Next year her wage will have risen to £7.50 an hour, meaning she will take home £1,046 in net earnings. But after the cuts she would receive just £775 per month in Universal Credit if she claimed next year – even with the taper reduction announced today.

So this family’s overall income would have been £1,849 per month in 2015/16 but would be just £1,821 per month in 2017/18 – a difference of £28 per month, or £336 per year.

Hasn’t the reduction in the taper rate improved work incentives, meaning people will be helped to work more hours and become better off?

Many workers already work full time. For others, the number of extra hours they would have to work to make up for what they have lost is ludicrous. The single parent in the first example will get £894 a year less than had Universal Credit not been cut. She earns £7.50 per hour gross. That’s £5.10 per hour after tax and National Insurance. After Universal Credit deductions at 63%, she will only take home £1.88 for every extra hour she works. To make back £894 at this rate would mean working an extra 474 hours a year. That’s 68 extra working days - a fifteen month year - for this full-time worker to squeeze in.

What today shows is that the rhetoric on ‘just about managing’ families will end up being meaningless if the government intends on largely persisting with policies that will tip the just managing into hardship and more children into poverty.