The biggest political event of the week is the Chancellor’s Autumn Statement. It is supposed to be an analysis of the economy to shape his budget next March but Mr Osborne has turned it into a mini-budget.
It received a largely hostile reception from the media as well the Opposition but detached observers may think many of them are missing the point in one way or another.
First, the Chancellor admitted that he would miss his target for eliminating the sovereign debt by 2015. This is the element of UK national debt that will not be eradicated simply by growing the economy. 2018 is the new target, meaning six more years of austerity. Ed Balls missed the point when attacking the Chancellor for presiding over the longest and deepest peace-time recession, overlooking that he helped the previous Government to create it by mismanaging the economy during the boom years.
Mainstream media also seems to have missed the point, blaming the Chancellor for ‘dragging a million people into the top rate of income tax’, even though he raised the basic tax threshold to £9,440 and the top rate threshold to £42,285. The reason those people will cross this threshold is above inflation pay rises. Isn’t that the point of progressive taxation?
So what is a realistic critique of the Statement? The economy is virtually stagnant but forecasted to grow gradually over the next four years. Recession in the Eurozone has hindered our exports and job creating growth but those looking for more stimuli for growth have a point. Reducing Corporation tax to 21% will make the UK more competitive in world markets but the sums invested in infrastructure projects do seem half-heartedly inadequate.
The scope for giveaways was limited and the squeeze on benefits, limited to 1% p.a. increases for three years, will hurt those living on the margins. At least State pensioners, given a 2.5% increase to £110.15 p.w. were spared, as were carers, but the well off, contributing large sums to their pension funds annually, will now lose tax relief at £40,000 instead of £50,000. This only affects 1% of pension savers but it will save£1 billion for the Exchequer.
Small firms receive increased investment allowances, local rate and tax relief and access to a new business bank created with £1 billion capital to help them develop and hopefully employ more people. Big multi-national companies, shifting their profits off-shore to avoid taxation will now come under the scrutiny of 2,500 additional tax Inspectors. £77 million is allocated for fighting tax avoidance and the Chancellor expects £5 billion additional income to the Exchequer. Other announcements included the cancellation of the 3p per litre fuel duty scheduled for January and an increase in stamp duty on multi-million pound houses.
There is good news and bad in the statement. The point is we had our seven fat years and must now live with the lean years. God give us wisdom to learn from past mistakes.