Autumn Statement 2014: Reactions to George Osborne’s announcement – from the City economist to the property expert

 

 

Growing firms will benefit from business rates reform. We welcome continued commitment to deficit reduction. 

 

“These major changes on stamp duty and business rates will be a shot in the arm for families and growing firms as they look towards 2015. The targeted focus on enterprise is right, but business innovators would have liked to see more on research and development to boost UK investment. International tax rules are in urgent need of updating, but the decision for the UK to go it alone, outside the OECD process, will be a concern for global businesses, and moving the goalposts on offsetting losses risks creating a worrying precedent. 

 

We welcome the continued commitment to deficit reduction, but real challenges lie ahead to reduce future public spending, and fresh thinking on public services will be essential.”

 

 

 

Pensioner reforms will give pensioners greater flexibility to use their assets to best suit their circumstances.

 

“In 2014 we have experienced the beginning of a pensions revolution; where individuals retiring will be able to decide how to use their pension assets to best suit their own circumstances.  The Autumn Statement continues this process, with the abolition of inheritance tax on joint life or guaranteed term annuities for those who die before the age of 75.  The IFoA would welcome clarification that the new rules on inheritance of annuities apply to all existing joint life and guaranteed term annuities, or that it would only apply to new policies after 2015.   

 

We maintain that offering greater freedom of choice can offer flexibilty and opportunity for pensioners but it also brings with it the risk that individuals underestimate their longevity and run out of money in retirement.  The best outcomes for individuals are likely to depend on having access to good guidance and, where required, good independent advice.”

 

“The IFoA is encouraged that the Chancellor has not introduced any further major pension reforms, allowing the pensions industry time to focus attention on establishing the appropriate framework in advance of April 2015, when the majority of changes are due to take effect.

 

 

 

Slight fiscal tightening. Real economic growth forecast revised up, but not in cash terms which will hit tax receipts.

 

“This balancing act is based on a small net fiscal tightening in the Autumn Statement, which re-emphasises that austerity still has at least four more years to run to eliminate the budget deficit. We are in for another parliament of pain, but there could be light at the end of the tunnel by 2020.

 

As expected, the OBR revised up its real GDP growth forecasts slightly in the short term, but revised them down from 2016 onwards. These downward revisions seem realistic given the ongoing malaise in the Eurozone, shrinking spare capacity in the UK economy and the limits to how much further household savings rates can fall. 

 

Together with lower-than-expected inflation over the next couple of years, this means that projected average GDP growth is lower in cash terms over the next four years than the OBR expected in March, which translates into tax receipts in 2018/19 also being lower than expected by around £25bn. This is despite a gradual return to positive real earnings growth from 2015, as well as continued jobs growth.”

 

 

 

Business rates reform and external finance support will help growth aspirations of many firms.

 

“The chancellor has used the last Autumn Statement before the election to demonstrate that he is listening to and supporting British businesses across the entire country. By focusing on key business priorities, such as Britain’s broken business rates system and the difficulty of accessing finance for growth, the chancellor has demonstrated that he is committed to solving problems that hinder the growth aspirations of many firms.   

 

Businesses will be pleased that the chancellor has committed the government to a fundamental review of business rates. 

 

This iniquitous tax is sapping good companies’ strength year after year, long before they make a single penny in profits. The review must deliver fundamental change to the business rates system. 

 

Tinkering at the edges is simply not acceptable when good companies have to scale back their growth ambitions because of out of control rates bills.”

 

 

 

Every target missed, every test failed, every promise broken. Over two years he’s revised up borrowing by £12.5bn. 

 

“He [the chancellor] promised to make people better off. Working people are worse off. He promised we were all in this together. Then he cut taxes for millionaires. 

 

Wages have not kept pace with prices for 52 of the last 53 months. Today’s forecasts from the OBR confirm that wage growth is once again weaker than expected. Working people are now £1,600 a year worse off than they were in 2010.

 

And that squeeze on living standards is not only hitting family budgets. It has also led to a shortfall in tax revenues. The OBR confirms that stagnant wages and low-paid employment have hit revenues.

 

I know the chancellor wants to blame the poor growth performance and poor productivity growth on the Eurozone.

 

I share his concerns about the Eurozone – we do need a plan for stronger growth in Germany and across the continent. But the weakness of the Eurozone cannot explain why, despite the notable successes of a number of our companies, our export performance has been so poor – and so much worse than other Eurozone countries.

 

Business investment, which has also lagged behind our competitors, actually fell in the last quarter. Bank lending to small businesses is falling. The number of apprenticeships for young people is actually falling this year.

 

And on infrastructure, for all the chancellor’s reheated re-announcements, barely a fifth of projects are ‘in construction’ and since 2010 infrastructure output is actually down over 11 per cent.

 

What we have seen today from the chancellor, with his Stamp Duty reforms, is he has now accepted, welcomingly, that high value properties are under-taxed in our country. But rather than taxing them only on sale, why doesn’t he have the courage of his convictions? Why won’t the chancellor have an annual charge on the highest value properties and use that for an extra £2.5bn a year in the NHS so we can have an extra 20,000 nurses and 8,000 GPs?”

 

 

 

Spending cuts have led to lower wages and therefore less tax. This has hit tax receipts with big cuts announced today to make things worse.

 

“The living standards crisis has wrecked the chancellor’s strategy.

 

He has failed his deficit reduction pledge as low-paid Britain is paying much less tax than expected. And businesses won’t find the customers they need if consumers do not have money in their pockets.

 

Nothing in [the] Autumn Statement will give Britain a pay rise, and Conservative plans to effectively outlaw strikes will help make Britain permanently low-paid. Wrapping up last year’s infrastructure presents and giving them to us again will not give the economy the extra boost it now needs.

 

Today should have seen policies for growth, but the chancellor has boxed himself in with a rigid and artificial deficit reduction timetable. If he continues in office that will mean eye-watering spending cuts straight after the election. These would knock the recovery sideways, deter investment and lead to great damage to our social fabric.

 

The way to heal the public finances is to build a strong-growing economy in which successful companies and well-paid workers pay fair taxes. Pre-election giveaways today under this chancellor will lead to even bigger spending cuts now that the global economy looks increasingly fragile.

 

This is economic self-harm, threatening a vicious circle of further decline. That would be Groundhog Day all over again – the same mistake that the coalition made in its first two years. The Office for Budget Responsibility has slashed its forecast for next year’s wages growth from 3.2 to two per cent, with reductions in years to come. Real wages are set to stay below their pre-crisis value until beyond the end of the next parliament. And public sector workers have been told that their real wages will be cut until the deficit has closed.”

 

 

 

We welcome the dismantling of the ridiculous and economically damaging stamp duty slab system.

 

“This tax distorted economic behaviour and stunted aspiration. The IoD has long campaigned for this change, which will benefit the vast majority of homebuyers. However, we think that the proposed 12 per cent top rate for the proceeds in excess of £1.5m may be too high. A lower rate (eight-10 per cent) could lead to more transactions at the top end and actually bring in more tax.

 

There has also been positive progress on income tax, with both the personal allowance and the higher rate threshold being raised. We believe this is right long term approach and urge all parties to consider this proposal.”

 

 

 

The government is expecting to take a hit to its stamp duty receipts as a result of the measure. Last year it collected £6.4bn in stamp duty on house sales.

 

“Removing the slab structure of the current form of stamp duty will remove distortions in the market.

 

There will be less bunching of values below the different thresholds. However, the new higher rates of stamp duty at the top of the market could act to reduce transaction volumes here and actually lower overall tax take more than currently forecast. 

 

Over the last year alone, transactions of £1m+ homes have accounted for nearly 30 per cent of all Stamp Duty revenue.”

 

 

 

The measures offer some encouragement for the oil and gas industry and are to be welcomed

 

“However, many will question whether enough immediate action is being taken to support an industry that is struggling with poor project economics, in a mature basin with an unpredictable and complex tax system. The announced changes are estimated to give the industry a tax boost of about £90m a year over the next five years, but given that the upstream direct tax revenues are expected to be £2.8bn in the year to 31 March 2015 alone, this is only a small step in the right direction.  

 

Much depends on the additional changes being announced tomorrow. With a number of UK North Sea fields up for sale the risk remains that the current low exploration activity will continue, with companies choosing to invest in countries where financial returns may be more robust and the upstream tax system is more predictable.

 

We will need to see the detail of the proposals… to understand if [the] measures and the future proposals are enough to safeguard North Sea jobs and future tax flows to the exchequer.”