Osborne does a Gordon Brown impression in gloomy statement

29 November 2011 | By Samuel Dale

When he first became chancellor George Osborne scrapped the Pre-Budget report which was introduced by Gordon Brown when he became Prime Minister.

Osborne claimed it had become something of a mini-budget and replaced it with an autumn statement, a simple economic update to parliament.

But today was no mere update as a raft of measures were whizzed off and key figures masked in a manner that would have made Brown proud.

For instance Osborne massively hyped up his key achievement with the claim that £22bn is expected to be saved on lower interest payments as gilts remain a safe haven across Europe.

He even rather dubiously claimed a 1% rise in gilts would mean £12bn more in mortgage interest repayments.

Something to welcomed perhaps but not in the context of growth forecasts plummeting from 2.3% to 0.9% in 2011, the Office of Budget Responsibility reports.

Not in the context of an admission that the structural deficit will not be eliminated by the end of the parliament as he promised.

Not in the context of far higher borrowing costs, some £158bn higher than expected by 2015 according to Ed Balls.

After the OECD had predicted the UK would enter recession early next year yesterday it was some relief to Osborne that the OBR didn’t predict a recession depsite massively downgrading forecasts and going below the 1% growth in 2011 that many pundits expected.

Further pain for the public sector was revealed ahead of the general strike over pensions tomorrow with a 1% rise in wages between 2013-15 after the current pay freeze ends, effectively another real term wage cut after inflation.

The moves for growth were interesting though with the credit easing revealed in more detail and a plan to invest £20bn of pension scheme money in infrastructure announced.

There was also a further loosening of monetary policy with Osborne acknowledging the £250bn QE policy of the Monetary Policy Committee and raising the celing to £275bn if it chooses to implemet a further round.

There was also some movement around tax relief for small businesses - extended until 2013, employment rights - scaled back and heavily criticised - and corporation tax, set to be cut to 25% next year now.

For the financial sector the banks took another bashing with a rise in the bank levy to 0.088% from 0.078% from January 1 2012.

It is the third such rise since the levy was first introduced which will not please the big banks.

But there was some cheer as Osborne categorically stated his opposition to a Tobin tax or financial transaction tax unless it was implemented globally.

Overall, it will mean more money squeezed out of the banks but there was strong support for the financial services sector from Osborne.

While accepting it was unstable to have one in every eight pounds of tax coming from one sector Osborne seemed to hint the banks would be engines of UK growth again.

For the housing market there was some red meat fleshed out from the housing strategy last week.

Right-to-Buy was wholeheartedly embraced with 50% discounts and Osborne branding it one of Britain’s greatest ever social policies.

The Mortgage Indemnity Guarantee is set to build 100,000 new homes although the government liability will be capped at £1bn.

Considering the costs of insuring 100,000 homes it is hard to see how these two figures are compatible.

Considering some number crunching from a previous blog the total liabilities for 50,000 homes, based on the Land Registry average house price, would be £664m.

It means that for 100,000 new homes the liabilities could total more than £1.3bn unless the houses are mostly below the average house price, which is possible.

But, disappointingly there was no mention of Stamp Duty relief for first-time buyers being extended past the March deadline.

It has left many first-time buyers unhappy with one Mortgeg Strategy online commenter “totally gutted” that he will have to pay as his house purchase will not complete until May 2012.

It would have been another boost to first-time buyers and the market but the governemnet believes it has failed to stimulate the market and there is plenty of action from the government with its MIG.

The flurry of government schemes combined with hidden figures makes it almost identical in style to a Gordon Brown budget.

But while he was chancellor there was never a situation that was quite so gloomy, so disappointing and with so many more risks from the Eurozone.

Things were pretty bad in this statement but they could get a whole lot worse.

If you enjoyed this article, sign up here to receive daily email updates from Mortgage Strategy and Follow @mortgagestrat