On 3 December 2014, Chancellor George Osborne delivered his fifth Autumn Statement, the last of the current Parliament before next May’s General Election, and declared that “today we back aspiration – the aspiration to save, to work and to own your own home”. Mr Osborne announced that his long term economic plan is working and insisted that, despite a challenging global backdrop, the Government can report that there is higher growth, lower unemployment, falling inflation and a falling deficit.
In his speech, the Chancellor took time to acknowledge some of the difficulties the UK is likely to face in the months and year ahead, noting that “the warning lights are flashing over the global economy”. Despite recent good news on growth and employment, the OBR’s report paints a relatively mixed picture in relation to the UK’s economic outlook, with GDP revised up slightly for this year and next, but down slightly in future years compared with its previous forecasts for the Budget back in March. On the issue of public borrowing, the OBR figures show that the Government is missing its own forecasts, with a public sector net borrowing figure of £91.3 billion (5% of GDP) for the current year, which is greater than the figure of £86.4 billion, forecasted nine months ago. Osborne, however, was bullish about the Government’s record on deficit reduction, noting that the “public finance numbers are much better than some were predicting” and insisting that the deficit remains on course to be eliminated by 2018-19.
Furthermore, Osborne was careful to demonstrate the Government’s continued fiscal credibility by stating that the measures announced were “not a net giveaway but actually tighten the public finances a little.” A major part of this fiscal balancing concerned the announcement of the extension of the welfare cap into the first two years of the next parliament and a tax “crack down” on banks and multinational companies – with the introduction of a 25% tax on profits generated by multinationals from economic activity “artificially shifted” abroad and new rules on the amount of past losses that banks are allowed to offset against corporation tax bills. With these measures, the Government is recognising that targeting welfare claimants, banks and large multinational companies is likely to prove popular with the general public as well helping to balance the books.
As you would expect from a Statement this close to an election – and from a Chancellor who is political to his fingertips – the speech included a number of ‘rabbits out of hats’. The biggest rabbit of them all was the announcement to reform stamp duty land tax; with the abolition of the residential slab system and the introduction of new marginal rates, which is set to reduce stamp duty payable on property transactions for 98% of people who pay them in this country. The motivations and ramifications of such a measure are clearly political as well as economic. The Chancellor has positioned this as a measure to stimulate the housing market and the UK economy, but also a way of demonstrating that the Government (and in particular the Conservative Party) are backing aspiration among, in particular, C1 and C2 voters, and are on the side of those who want to own their own home and, in Conservative Party parlance, work hard, want to get on in life and do the rights thing for themselves and their families. Moreover, by raising the tax take from those purchasing the most expensive 2% of homes – including a disproportionate number in just two flagship Conservative-run London boroughs – it pre-emptively undermines Labour’s mansion tax proposals and blunts the otherwise inevitable Labour-charge that Osborne is feather-bedding the rich.
Labour’s response was to highlight a series of broken promises by the Government – on the deficit, living standards and immigration. The Shadow Chancellor, Ed Balls, stressed that we needed a recovery for the many, not just a few, and that the Government needed to balance the books in a fair way.
After allowing speculation to seep out that the deficit numbers were way off course, that stamp duty reform was off the cards and that there was no money to fund tax breaks or reliefs, George Osborne has once more shown himself to be a master of political stage management. Whether this looks like no more than a modest sleight of hand by the time of the pre-election Budget will remain to be seen. History may judge him more harshly for his obsessive desire to parade himself as the steward of fiscal rectitude when the reality is that performance against the Government’s own fiscal targets has significantly deteriorated right out to 2016-17 – and that’s according to the Treasury’s ever-present conscience, the OBR.