What tomorrow’s Autumn Statement should say
Dec 2012 04

George Osborne will deliver his Autumn Statement to Parliament tomorrow and is expected to bring grim news about his progress towards balancing Britain’s books and getting the economy back on track. So what should he say to bring relief to struggling taxpayers and restore balance to the public finances? He should break with the tradition of an ‘update’ Autumn Statement and announce policy shifts. Instead of nonsense about “shovel ready” projects and shuffling taxpayers’ money from one category to another, he should look to four key themes.

Firstly, tough decisions so the Government gets back to living within its means. Secondly, genuine action to bring back down our soaring cost of living. Thirdly, targeted tax and benefit changes to make work pay and create jobs. Lastly, lasting reform to ensure a competitive economy, a fairer tax system and affordable public spending over the long term.

1. Living within our means

  • Scrap HS2. The high speed rail line is a white elephant we just can’t afford.
  • Freeze International Aid. Recent aid spending scandals have shown that too often our money isn’t spent wisely. We can’t afford to spend even more
  • Cut BIS. Successful business can look after itself and doesn’t need taxpayers’ money wasted on corporate welfare. The Chancellor should signal that he intends to close this department, transferring any useful areas to other departments, such as transferring responsibility for universities to the Department for Education
  • Freeze public sector pay progression. The numbers of public sector employees has been cut and taxpayers were promised a public sector pay freeze. And yet the total pay bill has still risen. Progression up pay scales should be frozen for a few years to ensure that taxpayers get the public sector pay freeze we were promised in 2010.
  • Abolish the 45p rate. Recent figures have shown that the number of people on high salaries in Britain has collapsed following the introduction of the 50p rate of Income Tax while New York has overtaken London as the top financial centre as Hong Kong and Singapore look set to overtake us in a few years time. We just can’t afford to carry on sending high earners and their taxes to other countries just for the quasi-moral pleasure of making the minority who stay suffer.
  • Abolish DCMS. The Department for Culture, Media and Sport is another area of largely unnecessary spending. Useful items should be transferred to other departments or made independent of government. But there’s no good reason why binmen should have to pay higher taxes so that bankers can enjoy subsidised trips to the ballet.
  • Means test fiddly pensioner benefits such as taxpayer-funded bus passes, taxpayer-funded TV licenses and winter fuel payments. One option could be to replace them all with an equivalent rise in the Pension Credit.

2. Tackling the cost of living

  • Cut Air Passenger Duty. This regressive tax puts a big squeeze on families taking a holiday. It should be frozen at the very least with a programme to eventually abolish it.
  • Cut Fuel Duty. The Chancellor should announce a freeze on Fuel Duty for the rest of the Parliament and he should indicate that cuts will be announced in the next budget.
  • Scrap minimum alcohol pricing. This nannying policy will increase inflation, increase benefits and leave taxpayer with the bill. And it won’t even do what the Government hopes, either.
  • Exploit shale gas. As well as creating jobs, profits and growth here, giving the green light for extracting more shale gas in the UK would result in lower gas and electricity bills for hard-pressed consumers who are suffering from the effects of crippling environmental regulations.

3. Creating jobs and making work pay

  • Cut the jobs tax. Employer’s National Insurance should be cut to from 13.8 to 11 per cent in 2013 to deliver a pro-jobs and pro-growth shock. Fiddly little schemes only affecting specific regions or certain types of company aren’t good enough and will just make our tax system even more complicated.
  • Cut Corporation Tax. Companies don’t pay tax, only people do. But they do relocate to avoid it on behalf of their employees and shareholders. The Chancellor should announce a bigger cut that will put Britain back on the map for global companies looking for a new location for their headquarters.
  • Cut Capital Gains Tax. This damaging tax should at least be cut to the revenue maximising rate. But Capital Gains Tax is double taxation and a plan to abolish it needed.
  • Freeze working age cash benefits. Falling earnings and rising benefits have crushed the incentives for work. As well as helping the Government to get back to living within its means, a freeze in cash benefits would also help restore the balance of incentives back in favour of work.
  • Cut employee’s National Insurance. This second income tax should be be cut from 12 to 11 per cent in 2013 to help make work pay. This should be announced tomorrow to show that the Government is serious about making work pay.
  • Scrap Empty Property Rates. Full business rates are charged on empty commercial and industrial property after a few months grace. Not only does this come at the worst time but it gives an incentive to landowners to destroy buildings and economic capacity during recessions. Businesses and entrepreneurs should be encouraged to find their feet again as quickly as possible in tough times, not kicked while they’re down.

4. Delivering lasting reform

  • Reform taxes on labour. National Insurance should be abolished. Our recent paper shows how it can be done in three steps within five years. The Chancellor should announce real reform leading to abolition.
  • Reform corporate taxes. They are far too complicated and have a serious legitimacy problem. The Chancellor should announce a consultation into their reform with a view to abolishing Corporation Tax and replacing it with a tax on distributed income along the lines of our recent Single Income Tax.
  • Reform local taxes. The Chancellor should announce a consultation on devolving significant funding to local authorities on a more rational basis, including scrapping the Barnett formula for Scotland.
  • Reform state pensions. A simpler, more understandable state pension system should be introduced as a minimum so people know what they can expect. The state pension age should be increased much more quickly and tied to what life expectancy is today, not what it was generations ago. And lasting reform should include moving our pensions system to something closer to the Australian model to ensure decent but affordable pensions for the long term.

Rory is the Research Director of the TaxPayers’ Alliance. Rory’s work is focused on tax policy and economics, with a particular emphasis on tax simplification.

  • cynic in a nice way

    cut public sector pesions by at least 50% and send all those lazy so and so’s who retired in their fifties back to work. They have at least another 15 to 20 years left in them . Like the rest of us in private sector. So we can all be in this together!

  • Botzarelli

    Wouldn’t it be better to raise air passenger duty so as to make holidaying in Britain more attractive?

    Perhaps the real and better reason for cutting it is not the impact on British holidaymakers but on business travel to and via the UK?