Paul Johnson, Director of the IFS, said:
“That was not the quiet Autumn Statement we were promised. Before
assessing the specifics, it’s worth getting a few things
straight. The public finances haven’t meaningfully improved. The
growth outlook has weakened. Inflation is expected to stay higher
for longer. Higher inflation pushes up tax receipts by more than
it pushes up spending on debt interest or social security
benefits. But rather than use the proceeds to ease the ongoing
‘fiscal drag’ effects of threshold freezes, or to compensate
public services for higher costs, the Chancellor opted to cut
other taxes – most notably National Insurance and corporation
tax. These tax cuts won’t be enough to prevent this from being
the biggest tax raising parliament in modern times.
More generally, announcing immediate and certain tax cuts in
response to highly uncertain changes in assumptions about the
UK’s medium-term economic prospects is not a recipe for good
management of the public finances. One reason the Chancellor
feels he has space for tax cuts is that the forecasts have rolled
forward, giving him another year to get debt falling under his
fiscal rules, buying him an extra £5 billion to play with – but
this hardly represents an underlying improvement in the state of
things. Spending the entirety of such a windfall, but allowing
borrowing to rise when bad news comes along, is not the route to
fiscal sustainability.
The prudent thing would have been to build in a larger buffer
into his plans, rather than only aim to meet the government’s
poorly designed, and loose, fiscal target by a tiny margin.
That’s especially true when one considers the possibility that
things move against the Chancellor in the spring. But instead we
got tax cuts, which will limit the room for manoeuvre for whoever
is Chancellor after the next general election. That might make
for good politics. It does not make for good policymaking.
All that being said, if the Chancellor was determined to cut
taxes, he has picked a pretty sensible set of taxes to cut.
Making full expensing permanent rather than temporary is welcome,
though it’s a shame there was no hint of an appetite for more
structural reform. Cutting National Insurance is a good way to
boost employment. But these tax cuts have been ‘paid for’, in
effect, by a bigger squeeze on the real-terms value of public
service budgets and an even bigger squeeze on public investment,
which is frozen in cash terms. There’s a material risk that those
plans prove undeliverable and today’s tax cuts will not prove to
be sustainable.”
ENDS
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