It’s the economy (and the deficit), stupid…

From glancing through the papers last week, you could be forgiven for thinking that, politically speaking, Leveson was the only show in town at the moment. With endless coverage focused on Lord Leveson’s report and the Prime Minister’s statement on its implementation (or non-implementation), it seemed that the defining issue occupying the minds of all those in Westminster and Whitehall was the future of press regulation and whether we should ‘cross the Rubicon’ of statutory press control.

This, of course, was far from the case in reality and anyone who could look beyond the media’s obsession with talking about itself would have noted that the significant event on the Government’s mind was, in actual fact, this Wednesday’s Autumn Statement, where attention turns back to the number one issue for the Coalition and for voters up-and-down the country – the economy.

The Statement – which is to be delivered to Parliament by the Chancellor at 12.30pm on Wednesday afternoon – was being finalised last week by the so-called “quad” of George Osborne, David Cameron, Nick Clegg and Danny Alexander in Downing Street where they worked on the finishing touches and ironing out last minute disagreements between to two coalition partners. It’s the last major political event of the year – one that is likely to define the political agenda for the coming months and act as a ‘break’ on previous news coverage (a point surely not lost by Number 10, who would have anticipated that any fallout from Leveson would be quickly lost by Wednesday).

So this week’s statement will be a big test for the Government and Mr Osborne. At a macro level, the two challenges remain as clear as ever – getting growth whilst sticking to a clear credible deficit reduction plan. The recent news has been mixed; despite the 1% GDP growth for Q3 2012 (which was reconfirmed by the ONS last week) this has not been a good year for the nation’s finances or on public borrowing. Speaking on Andrew Marr yesterday, Osborne admitted that that cutting the UK’s financial deficit is “taking longer” than planned, fuelling speculation that the OBR will state that the Government will miss its target of cutting debt as a share of national income by 2015/16 and that spending cuts could extend until 2018 – well into the next parliament.

The Chancellor, therefore, is likely to announce additional measures to increase tax revenue and cut spending in order to maintain credibility on the deficit reduction plan. He has made clear hints that this is likely to involve targeting wealthier pension savers by cutting the tax relief cap on pension contributions as well as additional cuts to welfare spending. At a political level, Osborne will need to show that these measures are both fair and workable. He will want to avoid the perceived failures of last March’s Budget statement – which was attacked by Ed Miliband as an ‘omnishambles’ – when a number of proposals were launched (including the notorious ‘pasty tax’) only to need a quick reversal as they proved to be unworkable or highly unpopular.

Once upon a time, Autumn Statements were fairly routine affairs – they were there for the Chancellor to provide an update on the general state of the economy. Under the Labour Government, Gordon Brown changed them into ‘Pre-Budget Reports’ (PBRs), which were seen by many as mini-Budgets and were often laden with major policy announcements. The irony is that whilst the current Government has attempted to move away from Brown-style PBRs and back to a more simplified statement, the current state of the economy has forced the Chancellor into announcing more and more proactive measures in order to show the Government’s focus in getting the economy back on track and to reassure the markets on the deficit reduction plan.

The Autumn Statement is now a Budget in all but name. Time will tell if it is seen as a successful one for the Chancellor.

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