In each Economic and fiscal outlook we publish a box that summarises the effects of the Government’s new policy measures on our economy forecast. These include the overall effect of the package of measures and any specific effects of individual measures that we deem to be sufficiently material to have wider indirect effects on the economy. In our December 2012 Economic and Fiscal Outlook, we made adjustments to our forecasts of real GDP, inflation and property transactions
This box considers the possible effects on the economy of policy measures announced in the 2012 Autumn Statement, and since Budget 2012. More details of each measure are set out in the Treasury’s Autumn Statement document and our assessment of the fiscal implications can be found in Chapter 4.
The Government has announced a number of policy measures that are expected to have a broadly neutral fiscal impact overall in the period between 2012-13 and 2016-17, and, in aggregate, have a limited impact on our economic forecast. There is a positive output effect from increased capital spending in 2013-14 and 2014-15, and from the reduction in the main rate of corporation tax in 2014-15, and a very small impact from the annual investment allowance measure. These are partly offset by policies which reduce welfare payments and current departmental spending. Various tax measures, including an increase in the personal allowance and changes in pension tax reliefs, when taken together, are expected to have a net small positive impact on household disposable income. We assume the receipts from the spectrum auction and the UK-Switzerland tax deal do not have any economic impact.
Taken together these measures are forecast to increase growth in 2013 and 2014 by about 0.1 percentage points in each year. This is partially offset by slightly lower growth in subsequent years, leaving the level of GDP overall 0.1 per cent higher by the end of the forecast period. Given that output is below potential across the forecast period we assume no offset from monetary policy. These estimates are based on the same multipliers that the interim OBR used in June 2010.a Given the relatively small size of these measures, using larger multipliers would have little effect on our estimate of the overall change in GDP.
The Government has also decided to continue to reduce public sector spending growth in 2017-18 at the same rate as in 2015-16 and 2016-17, an adjustment of £4.6 billion measured against the Treasury’s chosen baseline of spending remaining flat in real terms. This is a relatively small adjustment at this long a time horizon so we have not adjusted our overall GDP growth forecast.
We have adjusted our inflation forecast to take account of measures that directly impact the price level. These include the decision to cancel the January 2013 fuel duty increase and to move the April 2013 increase to September. These measures reduce our inflation forecast by around 0.1 percentage points by the end of 2013.
The Funding for Lending Scheme (FLS) was launched by the Bank of England and the Government in July 2012, and is discussed further in Box 3.4. It is designed to encourage banks and building societies to expand their lending to households and private non-financial corporates. There has been a fall in banks’ funding costs since the summer, to which the FLS is likely to have contributed. However, the precise impact of the FLS is difficult to isolate from wider developments in financial markets over this period. We assume that the overall fall in funding costs persists and estimate that this will add up to around 0.3 per cent to the level of real GDP by the start of 2014, compared to the position if funding costs remained at their summer level.
Since the March Budget, the Government has also announced various measures aimed at improving supply in the UK housing market, by increasing house building and renovation of empty properties. These include the Affordable Homes Guarantee and planning reforms. Given these measures and the FLS and the extension of the FirstBuy schemes, which will improve access to credit, we have increased our property transaction forecast by a total of 120,000 over 2013 and 2014. Our forecast is now for 2.3m total transactions over this period.