Wednesday, 5 December 2012

Some thoughts on... the Autumn Statement

Today it was the Autumn Statement  - as ever there was a mixed bag of measures: some good, some bad. Here are some of my thoughts on a handful of the key areas:


Growth - or the lack of it - is the biggest issue stalking our economy. Labour would have us believe that we could have spent our way out of the aftermath of the 2008/09 recession, created growth and maintained our international standing. The Tories (and the Government) are adamant that we had no choice in the course of action we took, that we are more stable as a result and that lack of growth is a global, not national, issue. Many Tories would have liked to go further, of course.

The truth is, of course, more nuanced and somewhere between the two positions outlined. I have no doubt that we needed to reign in spending and address the deficit and put in place a plan for the debt. I don't believe that we would have retained our AAA rating this long without doing so - although that is likely to go in the new year. I don't believe there was (or is) a magic bullet to creating growth and I think that continued spending would have created an illusion of growth whilst storing up greater problems for the future. 

And - just as Labour were right in 2008/09 to say that the recession was a global phenomenon (albeit they had squandered a surplus that could have helped us weather it) - the Government is right to point out that other countries have their own growth issues with forecasts abroad being revised down as regularly as ours. It is true, though, that we have lagged behind Germany and the US in this area over the past few of years.

But we patently haven't done enough on infrastructure, capital expenditure and bank lending. There are signs of movement on this but real action needs to be taken right across the country (and not just on Crossrail, the Northern Line, the M1 and M25!).


Last year, the Lib Dems won the battle for benefits to be increased by the full rate of September's CPI (an unusually high 5.2%). This year, it is suggested that the Tories wanted a freeze but have conceded to a 1% rise for benefits (excluding Disability and Carer benefits, and the State Pension) for each of the next three years.

Whilst I was supportive of the move from RPI to CPI in indexation for benefits - and am sympathetic with those that argue that many working people have had to endure sub-inflation rises or pay freezes for many years now - benefit levels are set so low it seems iniquitous to increase them at a rate lower than the rise in inflation. Indeed, low income households are disproportionately hit by higher than inflation rises in heating and food costs.

Whilst working people haven't had it easier - those at the lowest end of the earning spectrum have benefit from rises in the Personal Allowance and the National Minimum Wage which will have (to some small extent) offset rises in CPI in a way that those on benefits will not be protected from at all.


Good news - very good news - came in the form of the announcement that next year's personal allowance will be increased by an additional £235 to £9,440. That means that, from April, basic rate taxpayers earning more than this threshold will be £47 better off, over and above the £220 already earmarked. An extra £22.25 per month.

We may go on (and on) about it - but this is one policy that Liberal Democrats can be truly, truly proud off: the £10,000 Personal Allowance threshold is in sight, and our aim must move beyond that. Next stop: taking Minimal Wage earners out of Income Tax altogether.


As someone who works in the Life and Pensions industry, I have mixed feelings about today's announcements. The added complexities and transitional arrangements that the new limits for tax relief on pension contributions (and what can be accumulated over a lifetime) will create more headaches in area already reeling from a series of reforms and changes.

Personally, I do think there's room to simplify the rules around tax relief, to save fund for the exchequer and to avoid pensions being used to avoid too many other taxes - whilst still encouraging pension savings. Reducing the amount that can be contributed annually to £40,000 does not seem unreasonable in the current climate. 

Historic note: Labour introduced the annual allowance in 2006, since which it has been cut twice - once to £50,000 and now to £40,000. It's starting level? A cool £215,000 rising to £255,000 before being slashed by the coalition. The Lifetime Allowance has gone on a similar journey - from £1.5M to £1.8M and back to £1.5M, with a cut to £1.25M now announced for 2014...

I think, on balance, I'm now in favour of tax relief being limited to the basic rate on contributions made - and an annual allowance around the level at which higher rate tax becomes payable (which the current level of £50,000 would be - I'm not going to quibble at the £40,000 level, though!)

I do think more work needs to be done on the passing on of pension savings - allowing them to inherited on the basis that they remain pension funds, subject to pension rules on the taking of benefits. At the risk of introducing complexity, such inherited funds could be made liable to taxation prior to the inheritor becoming eligible to (or taking) benefits. Thought should also be given to allowing earlier access to a proportion of pension savings - this may help people who would otherwise baulk at locking their funds away to save more.

What is needed, more than anything, is a long-term, sustainable, stable approach to pensions which encourages savings, gives certainty on the benefits and introduces some flexibility into the system. 


The cancellation of the latest (and already postponed) rise in fuel duty will be very much welcomed. I, though, must pronounce myself sceptical on this: the logic of the fuel escalator (present for year, and formalised by Gordon Brown, let we forget) is that as fuel becomes more expensive, people are encouraged to seek alternative forms of transport. Whether or not incremental changes would or do achieve such an aim is, perhaps, a moot point.

The escalator was put in place prior to the some pretty steep rises in the price of oil (and exchange rate fluctuations haven't helped, even if the Dollar price has eased). The price has gone up (seemingly*) constantly but people are still buying fuel. These external pressures have meant, though, that the escalator has, more often than not, stalled.

As things stand, prices of Unleaded Petrol have dipped from their high point in the summer; the three pence (2.25%) rise in duty would have resulted in prices still six pence per litre shy of their high point. For comparison, rail fares are due to go up by (on average) 4.2% in January.

This may not be popular, but I'd have left this rise in duty in place.

There is, of course, much more that can be said about the Autumn Statement - and I'm sure much of what I would have said will be said elsewhere. For now, though, I've said enough.


No comments: