Thursday’s Autumn Statement was George Osborne’s opportunity to gloat about the increase in projected growth figures, safe in the knowledge that Plan A was the right economic policy to pursue. He even had the pleasure of a screaming Ed Balls doing more to destroy Labour’s economic credibility than any Tory could ever do. The Autumn Statement always gets mass coverage across all news networks, unless, say, an idolised statesman suddenly dies. Mandela’s death has obscured much of Osborne’s proposals from the field of public vision, so in this brief review I’ll look at the Chancellor’s proposals.
First off, increasing the pension age will be unpopular, but it is the right thing to do. With an ageing population we will experience a fiscal crisis unless it goes ahead. For young people it’s a hard pill to swallow, but unfortunately the problem of vast unfunded liabilities makes it a necessary one. Borrowing also needs to come down faster. It has been £111bn in 2013/14, which is equivalent to £304m/day or £12.6m/hour. It’s reassuring to see that the deficit is falling faster than previously (though not originally) projected, but the numbers are still vast.
Corporation tax is an invisible and regressive tax on earnings, because it falls mainly on workers’ wages. Though the government’s cuts are welcome, the very notion of a corporation is anti-business, and it should be consigned to the scrap heap of history. The Chancellor’s confirmation that the personal allowance will rise to £10,000 is good news, but the government should go further and peg it to the minimum wage. No one on minimum wage working full time (and therefore earning around £12,500 a year) should have to pay income tax, it defies all logic, and so this should be a key aim to reduce poverty, especially when the cost of living is such a political hot potato.
The development budget I personally believe to be too high to justify in tough economic times, even with the good news the Autumn Statement brought with it. With borrowing rights as high as noted above, it does seem excessive to be borrowing money just to give it away- at a level of 0.7% of GDP, which makes us one of the most generous countries on earth. The cap on total welfare spending will be modified every year and doesn’t make much sense in any case: the possibility of external economic shocks causing unemployment means it is unlikely to be sustainable in the long run.
Another slightly problematic aspect of the statement is the government’s must maligned Help to Buy scheme, which seems to misunderstand the cause of inflated house prices. If more houses are built then prices will fall. This will happen if we liberalise the planning system. Throwing money at the housing market will drive prices up and do little to increase supply. Reducing the green belt would certainly also be a policy that would allow for supply of housing to drive up.
All in all, the Chancellor’s announcement that OECD growth reports have upgraded Britain by the largest amount in 10 years was very welcome, and the gist of this government’s fiscal policy has now proven itself to work. Recovery will start to take hold, and expect the Tories to continue peddling the line that has been so practiced this week: ‘we are the party to trust with the economy’ all the way up to 2015. And judging by the reaction to Osborne’s statement, don’t be surprised if that proves a very successful line indeed.