Boost to public finances helps Osborne pay for tax credit climbdown

25th November 2015


The Chancellor was given increased room for manoeuvre in his Autumn Spending Review as a result of a £27bn improvement in the public finances, thanks to higher tax receipts and lower interest payments on debt.

George Osborne was able to use the country’s better financial standing to scrap deeply unpopular tax credit and policing cuts.

He said the Government would be able to deliver a budget surplus of £10.1bn by 2020.

However, the Chancellor said he would push ahead and deliver £12bn of welfare cuts in full.

Osborne said: “Since 2010, no economy in the G7 has grown faster than Britain.

“We’ve grown almost three times faster than Japan, twice as fast as France, faster than Germany and at the same rate as the United States.

“Even with the weaker global picture, our economy this year is predicted to grow by 2.4%, growth is then revised up from the Budget forecast in the next two years, to 2.4% in 2016 and 2.5% in 2017.

“It then starts to return to its long term trend, with growth of 2.4% in 2018 and 2.3% in 2019 and 2020.”

Debts are forecast to be 82.5% of national income this year, 81.7% next year, 79.9% in 2017-18, 77.3% the following year, then 74.3% and 71.3% in 2020-21.

Nick Peters, portfolio manager at  Fidelity Solutions, says: “In today’s Autumn Statement the chancellor announced that since 2010, on average, the UK has been the joint fastest growing economy in the G7 and revised up growth forecasts in 2016 and 2017.

“I am confident the conditions are right for the economy to continue its modest expansion throughout 2016, and continue to believe that there are selective opportunities within UK equities.

“Wage growth has turned positive, driven by rising employment and increases in the minimum wage. This is particularly important and should help to drive a broad based feel good factor, which has been missing in the wake of the financial crisis. Banks should also be able to put the 2008 legacy behind, particularly as the regulatory burden subsides and the policy environment becomes more supportive. At the same time, the eurozone should continue to recover, helping to deliver increased demand in the UK’s biggest export market.

“UK equity investors can choose between the more domestically focused FTSE 250 or the more globally exposed FTSE 100. I favour the latter, which should be able to benefit from some of the themes above, as well as broader global themes. Consisting of larger companies, the FTSE 100 has a high exposure to the commodity sector, which accounts for around 20% of the index capitalisation.

“This has made it an attractive hunting ground for value managers, who are now buying companies in the energy and basic materials sectors. Company management within these sectors are beginning to show greater capital discipline, cutting back on capital expenditure and channelling cash flow towards dividends. In this context, and with the potential for stabilisation or an increase in oil and commodity markets, these sectors should do well.”

Leave a Reply

Your email address will not be published. Required fields are marked *