Author: johnredwood

The Coalition came together to cut the deficit. So far they have kept their spending increases within plans, but have experienced a shortfall on receipts, so the task is half done.

The Autumn Statement provides a suitable opportunity for all main parties to set out their intentions for the next five years. Would any wish to go further and faster in curbing spending? Do any want to go faster with tax rises? Do any have a way to boost tax revenues with lower or similar rates, through promoting growth?

The UK economy needs to develop higher productivity, which in turn can lead to higher pay. The efforts going in to strengthen education and training, to improve the science base, to bolster manufacturing and to make it more worthwhile to work are all policies designed to foster more and better paid jobs, which are the key to economic improvement and to lower welfare and benefit spending.

The main policies revealed by Labour and Liberal Democrats reveal nothing of substance about how they wish to tackle the deficit. Labour’s cuts are tiny, and their tax rises all absorbed by spending pledges. In addition Labour wrongly think increasing the top rate of Income Tax to 50% would increase revenue, when history shows it would cut receipts. The Lib Dem’s Mansion Tax will not make a lot of difference to total revenue.

The Conservatives have got furthest in talking about the magnitude of public spending reductions they will need to eliminate the deficit in the next Parliament. The OBR figures today will show us where the government thinks it has reached on the long road to balanced books.

In the 2010 budget the Chancellor forecast Income tax receipts of £158.4 bn from PAYE and £35.1bn from self assessment for 2014-15. In March 2014 these forecasts had fallen to £142.2bn and £27.2bn. This decline of £18.4 bn reflects the decision to raise Income Tax thresholds more, cutting Income tax receipts from lower earners. It also reflects the higher top rate of tax which has collected less revenue than expected, and less than a lower rate would have collected.

In 2010 the government forecast £1.6bn of Petroleum Revenue Tax for 2014-15, recognising the likely fall in oil tax revenues.Today we must be looking at a figure of practically nothing, given the decline in output and in the oil price.

In 2010 the forecast was for £33.4bn of fuel duties. They are now forecast at £26.8bn following successful campaigns to cut the rates.

Value added tax was put up, and this has both increased the revenues and resulted in outperformance of the forecast for money raised. National Insurance is £10 bn down on the 2010 estimate for 2014-15, despite the increase in employment. Offshore (oil based) corporation tax is down by a massive £6bn, and total Corporation Tax is down by £18bn overall, in part owing to the cuts in rates.Capital Gains Tax remains way below the £7.8bn it reached at the 18% rate in 2008-9, owing to the large increase in the rate.

When some of the main taxes in the country yield in excess of  £50bn less than forecast it is time to ask some questions about tax policy.

In a minority of cases – CGT and the top rate of Income tax – the rates are too high. Cutting the rates would increase revenues by increasing the number of rich people based here, and changing their behaviour to undertake more transactions and to receive more dividends and other remuneration.

In other cases like tax thresholds and fuel duty the revenue is lower thanks to tax cuts. Personally I support those cuts, but they do mean you have to spend less as a result, or find something else to tax.

The interesting question is Corporation Tax. The idea of lower rates should be attractive to companies looking for a place to invest. However, the rate cutting has clearly taken the rate below the optimum rate for maximising revenue. There is a feeling in the country that large multinationals should make a proper contribution to the UK as host country for part of their operations. The interesting question is how could this be done without deterring investment or driving them out of the country.

In yesterday’s press we learned that the Autumn Statement this week will include substantial extra sums for the NHS budget, and an enlarged roads programme.

This does not represent an increase compared to original plans for this year set out in the summer of 2010 by the new Coalition government, though it does represent a shift of priorities within the budget totals.

In June 2010 the government announced that it would increase total managed spending from the £669bn of the last Labour year to £737.5bn by 2014-15. Current spending would go up faster, at the expense of capital projects. Current spending was forecast to rise from Labour’s £600 bn to £693 bn by 2014-15.

In March of this year the Treasury published new forecasts for 2014-15 and beyond. They then estimated £680 bn for current spending, down on the 2010 forecast, with higher investment producing a total expenditure figure of £732 billion, down a little on the 2010 forecast.

These figures illustrate that the government has kept current spending under control as it wished to do, and has been able to increase capital spending whilst still keeping the totals below the original forecasts.

The higher deficit than planned is entirely down to weaker revenues, not to higher spending. Most people think spending has been cut heavily, though these figures(as I pointed out originally) meant some quite substantial cash increases in some areas, and allowed small real growth overall, with some departments nonetheless suffering cuts. In explaining the higher deficit, however, we need to explain deviations from the original plans. The adverse ones are all on the revenue side.

As I have explained throughout we are borrowing substantial sums in order to sustain further cash increases in public spending. This Autumn Statement is unlikely to bust the spending limits of 2010, and will allow more investment at the expense of current costs.

Yesterday I attended a seminar on harnessing science, great universities and new enterprise to promote growth.

The UK has several universities in the top ranks of world academic achievement. Oxford, Cambridge, Imperial London and other leading London establishments provide homes to some of the greatest world scientists and thinkers. However, if you compare our leading institutions with the Boston and Californian clusters of academic excellence which often top world tables we score less well when it comes to attracting private sector donations, harnessing venture capital and developing more new business on the back of the university achievements.

There is a growing interest in the idea of a golden triangle linking Oxford, Cambridge and London. There is also some success in all three main university locations in developing new business, attracting in new capital and encouraging more entrepreneurs. Oxford, Cambridge and London now have their own clusters of science and technology based businesses with good links and connections into the universities. Our success is one many other parts of the world would like to emulate, even if we are still behind the two best of the US on some of the qualifying results.

I trust the Autumn Statement will assist these important areas with improved transport links. They are developing critical mass for themselves in areas like nuclear, pharmaceutical and genetic developments. They can help generate the more interesting better paid jobs which a first world economy needs.

On 25th March 2013 David Cameron made an important speech on immigration in Suffolk. He said:

“Immigration has to be properly controlled. Net migration needs to be brought down radically from hundreds of thousands a year, to just tens of thousands”. He reported good progress in curbing non EU migration and went on ” Now what we need is to work across government so that our immigration policy is factored into our benefits system, our health system and our housing system”. He wanted to stop Britain being a “soft touch”.

Yesterday he had to report disappointment in hitting the targets, explaining that continued recession and poor economic performance on the continent was pushing more and more people to the UK to find work. Yesterday he announced further measures to curb new migrants access to benefits and housing for the first four years after their arrival. He said

“I want to get net migration back to the tens of thousands which it was in the 1990s. This is not some sort of outlandish unachievable pledge”. “It is not wrong to express concerns about the scale of people coming into the country. It boils down to one word. Control”. In the 30 years to 2004 net migration totalled 1 million. In the next 7 years there were an additional 1.5m people from migration.

Both the 2013 and the 2014 speech shows he fully understands the level of public concern, and shares the worries about how we provide sufficient healthcare, housing, welfare and other public services for all the people currently coming.

The main things he now wishes to do to control numbers is to require people to be here four years before getting any tax credits, child benefit or access to social housing. He also wishes to stop people claiming child benefits for children not living in the UK.

Do you agree with his aim of controlled migration in the tens of thousands? Do you think these new measures will do the job?

There have been varying interpretations of what the Smith Report says on fixing Income Tax for Scotland and for the rest of the UK.

Labour and the Lib Dems quote the part which says “Income Tax will remain a shared tax and both the UK and Scottish Parliaments will share control of Income Tax. MPs representing constituencies across the whole of the UK will continue to decide the UK’s budget, including Income Tax”.

They wish this to mean that Scottish SMPs in Edinburgh can decide Scotland’s Income Tax rates and thresholds with no advice or votes from the rest of the UK, whilst Scottish MPs can come to Westminster to vote on the tax rates and thresholds for the rest of us.

However, Smith goes on to say “Within this framework the Scottish Parliament will have the power to set the rates of Income Tax and the thresholds at which these will be paid for the non savings and non dividend income of Scottish taxpayers. As part of this there will be restrictions on the thresholds and rates the Scottish Parliament can set. All other aspects of Income tax will remain reserved to the UK Parliament.”

Conservatives take this to mean that English votes for English issues would obviously apply to Income tax rates and thresholds, as these are no longer a UK reserved matter under the Smith settlement.

The decision to let Scotland settle her own Income tax rates and thresholds intensifies the pressure and the need for English votes for English issues, including these crucial tax powers. Some Labour MPs in private see the justice of England’s cause. Smith does not rule out justice for England, which must be getting much closer as we contemplate these large powers going to Scotland.