Lord Flight was Shadow Chief Secretary to the Treasury from 2001-2004. He is now chairman of Flight & Partners Recovery Fund.
I congratulate George Osborne on the Autumn Statement which had several good things in it, even if, as with the now excessive burden of High Street business rates, the proposed measures constituted temporary elastoplasts rather than the much needed, fundamental reforms. Going through the speech, I make the following specific observations, both positive and negative.
- The Chancellor rightly made the point that our exports are too dependent on markets in Europe and North America where the continuing recession in the Eurozone is a drag. He did not make the point that what is wrong with the Eurozone is the Euro itself, and fierce German objections to any form of mutualisation of debts or transfer payments, which a currency union requires. Moreover, EU Regulations, to which we are subject, prevent us from doing attractive deals with the fast- growing economies to boost our exports to them.
- Osborne was honest with his figures and percentages as regards both projected borrowing and the projected rise in public sector debt. As he stated, his forecast for the continuing fall in the structural deficit has not improved, and still represents 4.4 percent of the 6.8 percent (of GNP), deficit this year. This represents of the order of £65bn. As the Chancellor admitted, economic growth alone was never going to be enough to repair Britain’s broken public finances. The real challenge is how and where to eliminate the structural deficit. Welfare remains a key area, but it also makes no sense to ring fence the NHS. The current pension reforms are, in the main, welcome, but continuing, pay as you go, final salary public sector schemes will have a cash deficit of approaching £25bn by 2017, for which the spending projections do not provide adequately.
- The Chancellor advised that Whitehall’s capacity to prevent error and tackle fraud in the Benefit and Tax Credits system will be strengthened, which is well overdue; but as has been demonstrated in the London Borough of Westminster, where massive housing benefit fraud has been uncovered, largely through the efforts of one particular councillor, there is the need for appropriate incentives to local authorities to pursue welfare and, particularly, housing benefit fraud.
- I hope the increase in the rate of the Bank Levy will not prove self-defeating in terms of driving international banks away from London.
- Lord Deighton’s energy and ability to make infrastructure investment happen is greatly to be welcomed, although I fear the nuclear power station deal done with the French and Chinese will be undermined by the EU, on anti-state aid grounds.
- The wholly inadequate supply of new housing stock, particularly in our large cities, is acknowledged, and it is heartening that the planning reforms to date are delivering a 35 percent increase in approvals for new homes. But it remains the case that our planning laws constitute a major deterrent and cost to new housing development – where scarcity of supply drives prices too high. The nettle of major planning reform simplification needs to be grasped. Moreover, while the significance of Stamp Duty is recognised in the major increases in tax revenue from this source, what is not recognised is that, particularly, in the South East, the explosion in Stamp Duty costs on buying a house constitute a major problem, especially for first time buyers, and a deterrent to people to both trade up and trade down, as is appropriate to their stages in life.
- The Government has done well with its encouragement of, and reforms of, apprenticeships but what the country needs is many more young people acquiring skills for employment “on the job”, by what we used to call sandwich courses, rather than an increase in university education, too much of which is not turning out people who are qualified for, or able to find, “university level” employment. The Chancellor referred to new student loans being financed by selling the old student loan book. What he does not state is that it is now estimated 40 per cent of the £85bn student loan book – some £35bn – will not be repaid, largely as some 40 percent of graduates are not earning sufficient to meet the student loan repayment threshold. Has this major loss been accounted for in the projected public finances?
- Osborne referred to the applauds for abolishing stamp duty on AIM shares, and announced that stamp duty for shares purchased in exchange traded funds will also be abolished. He did not make mention of the fact that the EU is threatening to impose a Financial Transaction Tax which, although not a participant, the UK would be obliged to collect on transactions in the UK relating to any Eurozone-based security. If this goes ahead, it will drive masses of business away from the UK to Asia and will cost more to administer than it is likely to collect. He should have announced his refusal to accept any such collection obligation, where the legal grounds of its threatened imposition are, to say the least, highly doubtful.
- Osbone lauded his increase in the personal allowance to £10,000 next year and also made the point that 30 percent of all income tax is now paid by just under one per cent of tax payers. It needs to be remembered that if a majority of citizens do not pay income tax there is a ready “political market” for “soak the rich” tax policies, which are damaging to the overall economy – as the Thatcher Governments of the 1980s were well aware.
- The new tax allowance to encourage investment in shale gas is welcome, but what is really needed is root and branch reform of the crack pot “Green” energy policy imposed by the EU. We will need continuing coal fire power stations (otherwise being priced out of operation by green levies), as well as new nuclear power stations to generate our electricity requirements. As the public has realised, major “green tariffs” on their electricity bills, to finance subsidies on wind and other alternative sources of energy, are driving up electricity costs for both consumers and industry to unacceptable levels. The modest temporary relief is welcome, but what is needed is a root and branch re-appraisal of energy policy along the lines suggested by ex-Chancellor, Lord Lawson.
In conclusion, the extent to which EU requirements and directives are now actively damaging our economy and frustrating our ability to put things right is noteworthy. The Chancellor pointed out that the Euro area as a whole will shrink by 0.4 per cent this year; while most of this is caused by the economic and financial effects of the Euro itself, the point is staring us in the face that the Euro and the EU itself are dire economic failures. If the UK is to remain a member of the EU, both the reforms to the EU itself, and the UK “opt outs” that are required, are very substantial.