CPS Autumn Statement Reaction - Osborne right to stick to deficit reduction, though much more to do

Ryan Bourne, Head of Economic Research at the Centre for Policy Studies said:

“The upturn in the economy this year has been welcome and is reflected in the improvement in both the OBR’s improved growth forecasts and overall government borrowing figures. But we agree with the OBR’s judgement that this is a cyclical upturn. In fact, the OBR’s current forecasts show the underlying structural deficit will be higher as a proportion of GDP in the next two years than forecast in the Budget in March. The implications of this are twofold.

Firstly, the Government must continue to cut government spending to try get the budget back to balance. Lots of the cuts necessary to achieve this have been pushed into the future, and the OBR estimates the deficit will only be halved by the end of this Parliament. Even with today’s improvements in the forecasts, then, the Chancellor is still going to fail to hit both his original targets for the deficit and debt outlined when the Coalition government was formed in 2010. Furthermore, it’s clear that further cuts to departmental budgets will be more challenging going forwards, meaning fundamental reforms of the welfare functions of the state will be necessary to close the remaining gap if, as the Chancellor said earlier this year, tax rises are not necessary. Whilst steps like raising the state pension age are sensible long-term measures, a fundamental review of the welfare state from first principles is looking increasingly necessary in the coming decade if we are to achieve a low-tax, low-spend approach to sustainable public finances.

Secondly, what the economy ultimately needs for sustained improvements in living standards is robust productivity growth. As yet, much of the upturn appears to be driven by consumer spending, so it was disappointing not to see more pro-growth supply-side measures to encourage business investment and productivity gains. There were some positive policy tax moves to deal with youth unemployment, business rates and freezing fuel duty alongside the ongoing competitive corporation tax rate, but the Government needs to go much further with pro-market policies on energy, planning and tax simplification where progress has been disappointing.” 


CPS Research Fellow David Martin lamented the lack of progress on tax simplification:

“The Chancellor had a long list of announcements today, but unfortunately the need for simpler taxation was not mentioned at all. And although HMRC published a paper today entitled “Supporting Small Business – Making tax easier, quicker and simpler”, it contained no new announcements on delivering simpler tax rules. So the challenge remains, to make the case for tax reform, to show that it would bring serious benefits, and that it is achievable.

Keith Boyfield, Research Fellow at the CPS, welcomed the Chancellor’s action on business rates. He said:

“The Chancellor’s decision to extend business rates relief to around 330,000 small businesses including speciality shops, pubs and cafes is to be welcomed. Business rates calculated at the peak of property rental values in 2008 have proved to be a barrier to economic growth across the small to medium sized sector – the key driver to entrepreneurial activity in the UK economy and a pivotal source of new jobs.”

On family taxation, CPS research fellow Kathy Gyngell said:

“Since taxation is done at the level of the individual, there is a clear unfairness in terms of the relative tax burden on one-earner families, especially where the worker is a higher rate taxpayer – which more and more people have been drawn into as the starting threshold has been lowered. A significant transferable tax allowance for married couples could have addressed this discrepancy. But the Government’s £200 a year tax cut, limited to basic income taxpayers, is a pretty derisory effort to address this anomaly.”

Date Added: Monday 2nd December 2013