The Autumn Statement plans for the next five years are very like the 2010 Coalition plans to eliminate the deficit. They rely on modest cash increases in total public spending and large increases in tax revenue, mainly coming from economic growth. The approach so far has succeeded in controlling spending within the totals set out, but tax revenue as we have seen has fallen well short.
The Green Book provides a full five year profile of spending and taxing. It shows public spending continuing to rise in cash terms, by £42.8bn or 5.8% over the period to 2019-20. Revenue is forecast to rise by £140.8 bn or 23% with the big gains coming from Income Tax, VAT and National Insurance.
This enables the government to forecast the end of the deficit by 2019-20, with the current deficit disappearing in 2017-18.
The original plan to bring down the deficit was explained as relying mainly on spending cuts. This was calculated by looking at inherited planned increases in public spending and in real terms. In practical terms the government planned to increase public spending, but to increase tax revenue at a much faster rate, mainly by economic growth, to eliminate the deficit. For the next Parliament the plans assume tight control of public spending, with only modest increases in the cash spending amounts. Once again the main method of cutting the deficit in cash terms is an anticipated substantial increase in tax revenues from economic growth.
There is little leeway in the figures for any new government to spend more without having to borrow more. Hitting the tax forecasts will require a long period of good growth, and setting tax rates that remain internationally competitive. Many of the individual taxes have fallen short of expected receipts over the last four years. The latest forecasts show the impact of lower oil prices on falling oil tax revenues, and assume some increase in revenue from the anti avoidance measures and new corporate taxes set out in this Statement.
The CGT receipts have been well below the peak levels prior to the 2008-9 Crash, illustrating that lower rates raise more revenue. The self assessment and top end income tax receipts have fallen well short, suggesting the 50% rate reduced receipts. VAT has been buoyant, with the higher rate bringing in more revenue as planned and a bit more on top. This government’s experience shows that you have to judge carefully which taxes will bring in more if you raise the rate. The Stamp Duty changes will have a substantial impact on the property market and it will be interesting to see what happens to revenues there.