Chancellor's statement was full of Treasury tinkering, rather than the radical reforms our economy really needs
In a personal view of the fallout from Chancellor George Osborne's autumn statement, Alex Wild , of the TaxPayers' Alliance, questions whether Mr Osborne is getting his sums wrong.
GEORGE Osborne served up more of the same on Wednesday: a mixed bag of revised forecasts and fiddles that offer small progress in some areas and a step backwards in others. The radical reforms the economy needs were conspicuous only by their absence.
The Chancellor conceded for the first time that he will miss his modest target of eliminating the budget deficit by the end of the current parliament. Instead, debt will continue increasing to a peak of 80% of GDP in 2015 before coming down. The official figure is, however, grossly misleading as it excludes off-balance sheet items that bring the true national debt up to more than 550% of GDP, around £8 trillion.
Politicians of all parties have been complicit in confusing the public over the state of our finances. A recent poll showed that just 6% understand the Government is increasing, not cutting, debt. In reality, they merely plan to cut the deficit which is how much more the government spends than it raises each year.
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The Chancellor's admission prompted Fitch, an international ratings agency, to suggest that the UK is likely to lose its AAA credit rating. The economic impacts of such a downgrade are unlikely to be significant. Countries like Japan and France have been downgraded with little impact on their borrowing costs as ratings agencies tend to follow, rather than lead, markets.
Long-term borrowing costs for the Government have increased in the past few months showing that a downgrade may already have been priced in. Politically, however, the Coalition's insistence on the importance of Britain's AAA rating means a downgrade could be hugely damaging for their credibility.
Economic forecasting is never going to be an exact science but the Chancellor's proclamation that the UK economy will grow by 11.5% by 2018 must be taken with a fistful of salt. It is based on Office for Budget Responsibility forecasts which have consistently over-guesstimated growth since it was formed. The Institute of Economic Affairs points out that if its 2012 over-optimism is repeated for the next five years, the economy will actually contract by 4%.
There was some good news, however.
The planned 3p rise in fuel duty, against which the TaxPayers' Alliance has campaigned energetically, was scrapped. Britain already has the highest fuel tax of any developed country. It has become a tool for politicians to suck even more money from hard-up taxpayers for whom driving is a necessity, not a luxury. Fuel Duty and Vehicle Excise Duty raised £31.5 billion in 2009, whilst road spending in 2009-10 was less than one-third of this.
Higher ISA limits will enable people to save more of their already-taxed income in tax-free accounts while restraint in benefit spending and an increased personal allowance will incentivise work and provide a much-needed tax cut to lower- income families.
The decision to increase benefits by 1% for the next three years, rather than uprating them in line with inflation, will go some way to reversing the damaging effects of earlier decisions on employment.
Increased National Insurance contributions and benefits outgrowing wages have made workers less attractive to employers and jobs less attractive to workers. The damaging effects of these past mistakes will take until 2015 to reverse, however.
On the business front, a Corporation Tax cut and increased investment allowances will boost investment and create opportunities for higher wages.
There was also a modest victory in the TaxPayers' Alliance campaign against empty property rates as the Government announced new properties will be granted an 18-month holiday period. Much remains to be done on this anti-business tax, of which both coalition parties were critical in opposition.
Now, the not so good.
Deceptive, under-inflation increases in the higher-rate threshold are set to drag an additional 400,000 people into the higher 40% rate. Combined with National Insurance, this is, in effect, a punitive 50% marginal rate on many middle-earners.
Meanwhile, there doesn't appear to be any progress on the merging of Income Tax and National Insurance that the Office for Tax Simplification was supposed to be looking into.
The TaxPayers' Alliance has shown how this can be achieved within five years and business leaders are overwhelmingly in favour of doing away with this poorly understood, opaque tax.
Disappointingly, annual pension relief is set to be cut by £10,000 while the basic state pension increases. Pension allowances stop savers being taxed twice. Whilst this will only affect relatively-high earners, it is unfair.
While taxpayers are seeing restraint in one form of welfare, corporate welfare is expanding in the form of grants. Instead of cutting business taxes further, allowing them to spend their money as they see fit, more and more money is being spent on grants for large firms with friends in high places.
For all the Treasury's tinkering, this was a statement which posed more questions than it provided solutions.
Taxpayers will be scratching their heads as to why, despite a 6% fall in public-sector employment and a promised pay freeze, pay bills have increased by 2%, for instance. Where is the austerity we keep hearing about?
Government spending is still increasing and this year the deficit will be £108 billion.
Where are the flatter, simpler taxes that George Osborne championed in opposition? When will taxpayers get a break?