Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
As a friend said to me, four Finance Bills in 12 months is a bit over the top! I did not much like the look of some of the Autumn Statement measures, and was also less than comfortable with some of the Summer Finance Bill. Both could well have been introduced by Gordon Brown, and contain material stealth taxes and gimmicks.
But you have to hand it to the Chancellor that he has led a highly successful recovery in the UK economy and, although postponed against his original forecasts, he plans to reduce the deficit to zero by 2020. But between 2014 and 2020, the Chancellor is increasing spending by £100 billion and has £100 billion of deficit to eliminate. To finance this spending, he assumes a £200 billion increase in tax revenues resulting from economic growth of about 30 per cent in nominal terms. I hope his forecast for continuing growth of around 2.5 per cent through to 2020 holds up – and add the obvious comment that, if this turns out not to be the case, the overall picture will look much less rosy – to say the least.
I am not surprised that the Office of Budget Responsibility (OBR) has found that it has underestimated the improvement in tax revenues, but it would have looked better if they had announced this independently, prior to the Budget. Also, a “correction error” of £27 billion looks suspiciously large, and assumes no hiccup in projected growth during the next five years.
The principled examination of where Government should and should not be involved is well overdue – but the statement instead Statement extended interventionism. Although increasing apprenticeships is an excellent objective, the Apprenticeship Levy amounts to a £3 billion tax on jobs – essentially restoring the NI surcharge we abolished for just this reason! It will hit low profitability industries, and lead to rising unemployment in two years’ time. I do not blame the Chancellor for doing a U-turn on Tax Credits, and it may be better to wait to phase them out completely with the new Universal Credit: I assume the latter is expected to deliver the £12 billion in welfare savings?
It is also time we heard something about off-balance-sheet liabilities. The statement switches the financing for nurses training from grants to student loans. The last time it was reviewed, it looked as if the loss waiting to be written off on the Student Loan Book would be at least £50 billion, arising largely from individuals not earning sufficient to be required to make repayments. There was nothing in the statement to address adequate saving and the deteriorating current account, nor to address Britain’s poor productivity, beyond the long term fruits of an improvement in education and the planned infrastructure investments.
I object, particularly, to the further tax attack on Buy to Let investment – the extra three per cent stamp duty. Buy to let is an alternative to a pension fund invested in equities, as a provision for income in old age, and does not have the tax advantages and incentives of pension saving. Moreover, in London and the South East the excessive rates of stamp duty already applying are having a negative impact on forecast tax revenues as people cannot afford to move – so, rather, they dig out their basements or add another floor to their houses. The Lafer effect is also evident with regard to capital gains tax, where forecast revenues are having to be reduced. The Chancellor should accept that the Labour Government got it right, at 18 per cent, rather than 28 per cent, as the optimum revenue-producing rate.
In principle, I support making local authorities self-dependent but, clearly, there will need to be some continuing subsidy from the more to the less prosperous areas – or the care services, in particular in the less prosperous areas, will be inadequately funded.
I am suspicious of the measures to increase home ownership, and disapprove of what looks like robbing the Housing Associations. It is self-evident that the main measures required are far greater freeing-up of planning law, to reduce the artificial value of land with planning permission, as a result of scarcity.
The main winners from the statement are pensioners. As the Saga General Election survey showed, some 80 per cent of pensioners vote, where only some 50 per cent of those under 40 do so. The better off were again hit, as was big business, although it has got the benefit of the lower corporation tax rate.
Overall, the Chancellor continued to “talk dry but act wet”, and the statement had the feel of a pre-election Budget. This, however, looks highly unlikely as the boundary changes will not come through until 2020. Perhaps the objective was to create a feelgood factor for next year, helpful to the Europhile cause in the coming Referendum?
Reading through the Spending Review, I felt it was unwisely boastful and so potentially a hostage to fortune. For a Conservative Government it was far too interventionist, where the success track record is not good. At least in the near term it is, however, likely to be highly successful politically, leaving the more sensible and electable politicians in the Labour Party without any clothes.