I was asked to write a response to the Autumn Statement by a leading national newspaper. I dropped everything on Friday morning and wrote the required number of words to their deadline, but they did not publish it, so I am now sharing it with you:
I like a bit of Robin Hood magic. One of the main tasks of modern government is to take from the rich to give to the poor. All the main parties buy into that ever popular idea from the UK’s favourite outlaw.
The Autumn Statement does a lot of it. Many of us had asked for some relief to the planned cuts to tax credits. The Chancellor stopped them. This was made possible because the Office of Budget Responsibility decided there was going to be much more tax revenue coming in. The Chancellor was free to play Father Christmas early this year as a result. We need to ask, how reliable are the forecasts of revenue? Will tax income be a massive £177 billion more in 2019-2 compared to last year? That’s each adult paying on average £3,500 more.
The task of redistribution is made easier if there are enough rich people living in our society, and if they are made to pay more of the taxes we seek to impose. Rich people have more financial options than the rest of us who depend on a UK wage. They can choose where to live, choose whether to work, where and when to invest and how much income and capital gains to take in any given year. Taxing them successfully requires keeping an eye on where else they can go and what else they can do to avoid paying taxes in our country.
The first change I would make to the Autumn Statement proposals is to tax the rich more. To do so we need to look at what is happening to taxes that the rich mainly pay. Capital GainsTax receipts are forecast to fall by 6.5% compared to the March forecast, amidst the bonanza of rising revenues. 28% is a rate too high, so people simply don’t sell their assets sitting on large gains, and legally avoid the tax altogether. 20% would bring in more revenue.
The same is happening to Stamp duty revenues. Now there are very high duties on dearer homes, the forecasts have had to be cut because rich people are simply not prepared to sell and buy a new home at the new rates.
Government has to mainly tax the rich because they have the money. They should not wish to do so as some kind of moral punishment for success. It should do so out of necessity, and in ways which allow them to remain financially successful. We want them to invest here, create jobs here and spend money here.
Before the last election the government set out the need to control public spending in order to get the large amount of borrowing we do each year down to more sensible levels. Every pound we borrow as a nation means future interest charges, and the need to repay at some point in the future. We spend now for our children to pay the bills later. The Chancellor memorably said he needed to fix the roof when the sun is shining.
The sun is visibly out now if we believe these latest forecasts of more growth, more jobs and more tax revenue. The Conservative Manifesto said it would cut real spending by 1% in each of the first two years of a new government. This week the Chancellor decided that was no longer necessary. He has instead proposed a large cash increase in public spending over the lifetime of this Parliament. The total spending in 2019-20 will be £821 billion. That’s £24 billion higher than the March budget forecast, or an increase of 3%. Is it right to spend tax revenue increases we do not yet have?
During the election I spoke out for prosperity, not austerity. I wrote that I did not expect the government to make any overall cut in public spending this Parliament. They had, after all, not made any overall cut in public spending in the previous Parliament, despite all the press and opposition talk of cuts. So I am not surprised .
This means running a bit more risk. There is always the danger that the revenue forecasts will prove to be too optimistic. Taxes are very sensitive to employment levels and consumer confidence. These can be hit by external forces with weak world trade, a Chinese slowdown and a latin American recession already with us.
I would be happier if the government did take something off total public spending as they promised to do in the election. This would leave a bit more margin for error. My preference would be to remove the EU contribution we make each year. This has been going up all too quickly. £11 billion of what we send them is spent on rich EU countries on the continent. This seems to me to be far too high a price to pay for membership of this difficult club. If we vote to leave the will be an immediate boost of £11 billion to our finances each year.
The government is rightly looking at ways it can use the overseas aid money more productively and help keep total public spending down. The BBC Overseas service should properly be a cost to the overseas aid budget. So should the full cost of activities undertaken by our military to help in failed states or to intervene with public health and other humanitarian crises.
This should be the year of thorough reform of parts of the public sector that cost us a lot and deliver too little. For years Housing Associations have been getting large capital grants on top of making big profits out of the rents they charge which are largely financed from Housing benefit. It is time to ask them to do more or to pay them less. They are asset rich and cash rich. If they wish to be independent charities then we should leave well alone. If they want to continue with more public support they need to accept some government imposed financial discipline and help meet government targets.
The same is true of Network Rail. That badly run unaccountable body has been eating up the public cash in recent years. Network Rail has large amounts of land with development potential close to the centres of towns and cities. They could help modernise our towns and free some cash by developing more of it. They could raise their efficiency considerably by hitting the standards of the better continental railways. They need to discipline their financial management of their huge investment programme, where all too many projects overrun in cost or are allowed big upward changes to budgets. Maybe the best answer for them will be to re unite track and trains, introducing private capital with railway companies organised around particular routes and parts of the country.
This is the year to take action to control costs and to build in some leeway in case the tax surge does not materialise in the way the OBR now suggest. It is great news that there are so many more people in work, and great news that real wages are now rising.A lower tax UK will be a richer and more productive one. The right lower tax rates will bring in more revenue. Better revenue forecasts should not exempt inefficient parts of the public sector from reform.