Hunt wields the scalpel, not the axe
The Autumn Statement was a sensible and measured response to the fiscal challenges facing the country, the Centre for Policy Studies (CPS) said today. While it is never a good idea for taxes to go up, the Chancellor rightly steered clear of many of the most dangerous ideas aired in the run-up to this statement. However, the think tank warned that Britain is still on course to have a deeply uncompetitive business tax and investment regime in the years ahead.
The most important task facing the Chancellor was to calm the markets, reduce long-term borrowing and tackle inflation, without making the looming recession worse through excessive tightening. On this front, the Autumn Statement did a creditable job – certainly in comparison to many forecasts.
The CPS accepted that freezing tax thresholds – and widening the tax base – was the ‘least-worst’ option for increasing the tax burden. Likewise significantly reducing tax allowances for capital gains and dividends was a better course of action than the mooted increases in those tax rates. And the CPS applauded the Government’s decision to ditch the proposed online sales tax – a measure the think-tank had said would ‘undermine competition, stifle innovation, and distort the market’.
On other hand, the think tank expressed disappointment that previously announced changes to stamp duty land tax will now be reversed in 2025. Stamp duty is the most distortionary and economically destructive tax on the statute books, and today’s announcement is a step in the wrong direction.
The CPS welcomed many other individual decisions in the Autumn Statement, such as support for energy efficiency and R&D, the focus on education and skills, and the commitment to deregulation, including long overdue reform of Solvency II.
However, the longer-term picture remains bleak. OBR forecasts suggest that real disposable incomes will still be below pre-pandemic levels in 2028, at the end of the forecast period. Likewise, the Prime Minister made clear in his Mais Lecture that weak business investment is one of the biggest and most enduring economic problems Britain faces. But figures released today suggest business investment in the first quarter of 2027 will be almost 9% lower than was forecast in March. And the CPS has already highlighted the fact that the looming rise in corporation tax and the expiry of the super-deduction will see us fall to 33rd of 38 OECD nations in the Tax Foundation’s international rankings of tax competitiveness – an alarming position.
These depressing facts underline the need for a comprehensive growth plan to be developed and implemented in the months to come. Alongside the plans announced by the Chancellor to reform regulation, unlock investment capital and build on Britain’s comparative advantages in finance and innovation, this should include the resurrection of Rishi Sunak’s plans to overhaul capital allowances, ensuring that more homes are built where demand is highest, and removing the countless impediments to energy and infrastructure development that hold Britain back.
Robert Colvile, Director of the Centre for Policy Studies, said: ‘Given the scale of the fiscal hole that the Chancellor was facing, he did the best job he could of patching it up without causing too much pain – except for the wealthy. While we would disagree with many of the decisions taken, most of the alternatives were even worse. But if we are to avoid more pain in the future, we urgently need to focus on the challenge of getting Britain investing, building and growing.’
Tom Clougherty, Head of Tax at the Centre for Policy Studies, said: ‘The tax-raising measures contained in the Autumn Statement were not nearly as bad as many feared. But any sense of relief today is offset by the knowledge that we are set to hurtle over a corporate tax cliff-edge next year. Hiking the corporate tax rate without introducing an adequate successor to the super-deduction will really hit investment, growth, and our international competitiveness.’
Karl Williams, Senior Researcher at the Centre for Policy Studies, said: ‘GDP assumptions are much lower than in the March forecast – but still not as low as we might expect. Productivity growth is weaker (and much more realistic) because of higher energy input costs, while business investment is significantly lower. But it is worth highlighting that the migration numbers are up by 65-88% across different years on previous OBR modelling assumptions, which allows them to sustain growth rates. It also helps to explain why GDP is growing faster than GDP per capita.’
Mark Lehain, Head of Education at the Centre for Policy Studies, said: ‘Given how tight things are going to be overall, to boost school spending by so much shows the Government’s commitment to education. Getting per pupil funding back to 2010 levels in real terms largely neutralises funding as a political issue and means the focus between now and the next election can remain on standards, as it should.’