Lessons from the Autumn Statement, chancellor George Osborne’s mini-Budget.
One: it is impossible for anyone attempting to run the public finances of a modern welfare state to cut spending. The entitlement culture runs deep and wide – witness the furore over the suggested cuts to tax credits (which allow families working a mere 24 hours a week to end up with an equivalent gross income of £50,000 – see my blog) and Osborne’s climbdown. So every cut or potential cut is met with ferocious protest, expensive lobbying and ludicrous demands for ring-fencing. That’s why spending is still rising in absolute terms. It’s why the debt-to-GDP ratio will still be over 70%, even in 2021. And it’s why (according to the Office for Budget Responsibility) the cuts announced so far are only “around two-thirds” the level pencilled in last March. The government is now even going to miss its own welfare cap targets for at least the next three years. It is horribly feeble stuff.
Two: that means that every penny of tax it can collect matters. HMRC is getting an extra £800m to spend on hounding people; there are to be two new criminal offences for tax evasion; and everything from offshore accounts to Deeds of Variation (which allow for the beneficiary of a will to be changed) will be more carefully “scrutinised” than ever before.
Three: being a pensioner today isn’t bad. Osborne is keen to let everyone know that he is providing “unprecedented support” for pensioners. And he is: the state pension has just seen its largest real-terms (after-inflation) rise for 15 years (see lesson one for why this is – pensioners are powerful lobbyists).
Four: Osborne has really had it with the housing bubble. He clearly wants prices to – at the very least – stop rising. So he is putting in place a number of measures to increase the supply of houses: there is to be £2bn spent on supplying around 400,000 new houses in the UK. And he is having a go at hitting demand too.
If buy-to-let investors thought that he was going to let up on the tax relief hit he sent their way in his last budget, they were horribly mistaken. Instead, he has, as my colleague Matthew Partridge puts it, “doubled down” on them: from April there is to be an extra three percentage point levy on all purchases of second homes and buy-to-let investments.
This, says Osborne, is to make sure that even those who pay for their buy-to-lets in cash feel some pain. Osborne’s idea is that small buy-to-let investors (those who aren’t doing it via a company) will start to sell up as the two new taxes loom, something that will push prices down and leave the first rung on the property ladder slightly lower for first-time buyers than it is at the moment.
Will this work? We rather suspect it will. If supply goes up and demand goes down, prices tend to fall. Just ask oil investors.