We now know quite a lot of what will be in the chancellor’s autumn statement tomorrow. There will be reductions in higher-rate tax relief for pension contributions, a relative cut in working-age benefits (which will rise by 1 per cent rather than CPI), a fuel duty freeze, a small, non-doms version of a mansion tax, some increases in capital investment (funded by guarantees and redirected departmental underspends), and a clutch of measures on corporate tax avoidance. We may also get some downpayments on the Heseltine review’s devolution agenda, although Whitehall resistance will doubtless keep these to a minimum.
If the chancellor has learned a political lesson from his March budget, however, he will be holding back some good news from the pre-statement briefing. There was a lot of talk about childcare over the summer and it could be that the chancellor has something up his sleeve in this area for what the Tories call ‘strivers’. If it is tax relief for nannies and childminders, it will be money badly spent: regressive, inefficient and open to abuse. If it is further spending on high-quality preschool childcare then it will help to lift the employment rate and tackle child poverty.
After the statement, there will doubtless be lots of focus on the chancellor’s fiscal rules and his plans for dealing with the government deficit and debt:GDP ratio (for the best recent blogs on this issue, see Gavin Kelly and Tony Dolphin). But there is unlikely to be any discussion of the UK’s private indebtedness. This stood at £1.415 trillion at the end of September 2012 – almost 100 per cent of GDP. Of this, £1.257 trillion was secured mortgage debt. The OBR currently predicts that private household debt will keep rising to over £2 trillion by 2017, and there are no reasons for thinking that they will revise that forecast downwards.
In other words, Britain’s consumers are not deleveraging and neither the government nor the Bank of England is doing anything much to help them restructure their debts. That makes them very vulnerable to going underwater when they have to remortgage or pay higher interest rates. In the US, deleveraging has happened more sharply because homeowners can hand the keys back and declare themselves bankrupt more easily. In the EU, asset bubbles have burst catastrophically, with debts dumped on the public balance sheet, followed by spending and welfare cuts. But in the UK, we’re still apparently in zombieland, not even debating the issue.