The new Chancellor of the Exchequer, Philip Hammond MP, said on taking up office in the summer that he would reset fiscal policy and provide a new plan for new circumstances.
However, with no radical action in the Autumn Statement to tackle 6 years of Tory complacency on the big problems in the UK economy including low pay, low productivity, low business and infrastructure investment, the most discernible new plan from the Chancellor was to put back the date for dealing with the deficit even further.
In 2010 the Tories promised to clear deficit by 2015: in fact it was the central mandate of their election. But in the Autumn Statement Hammond now confirmed that the deficit could not be eliminated until up to ten years later, saying that the UK finances would "return to balance as early as is practicable in the next Parliament".
The Tories told us that austerity was a necessity, but as we have seen under six years of Tory economic management that austerity has not been a successful way of dealing with the deficit.
Nor did the Autumn Statement do anything near enough for working families who are struggling in the Tory low wage, low productivity economy.
There were only minor tweaks to cuts in Universal Credit. Hammond reduced the earnings taper -how quickly the benefit is withdrawn as recipients earn more- from 65% to 63%. This means that for every extra pound earned over the work allowance, a worker will now lose 63p rather 65p of their Universal Credit. As the Resolution Foundation has shown, Universal Credit cuts will hit family budgets by billions of pounds and the 2% taper reduction only gives back a few hundred million. A single working parent would therefore still lose up to £2800 due to work allowance cuts while only gaining up to an extra £200 from the taper cut.
Nor did the Chancellor reverse cuts to welfare-to-work in the new Work and Health Programme, despite the fact that Learning and Work Institute research has highlighted that the Work Programme has been particularly unsuccessful in areas with high unemployment such as Birmingham Ladywood.
There were some positive pledges made by the Chancellor. The National Productivity Investment Fund is set to spend £23bn between 2017 and 2022, with a focus on housing, research and development as well as transport networks and digital infrastructure. With productivity at such low levels, these investments are crucial. Having grown faster than the US, France and Germany in the decade before the financial crisis our average labour productivity slipped to a third lower than all three in 2014. Moreover, regions outside of London and southern Britain have productivity levels comparable to poorer regions of Central and Eastern Europe. However, with this Government’s poor record on infrastructure delivery, I fear these investments may be too little, too late.
Shockingly, with the worst funding crisis in NHS history, the Chancellor also provided nothing for the NHS or social care.
His tax choices were also disappointing for the average working person as yet another Tory chancellor continued the Tory tradition of burdening the most well off with the lightest load.
The Chancellor announced that the income tax free personal allowance will go up from £11,000 to £12, 500 and the higher rate threshold to £50,000 by the end of this Parliament. The Resolution Foundation showed that 85% of the benefit of this change would help the top 50% of earners.
And such a move to help the better off comes at great cost to public finances. Measures announced in the Autumn Statement are expected to cost £1.3 billion by 2020 if the pledge is met in April 2020. The Government has already announced increases in the personal allowance and higher rate threshold in both 2016/17 and 2017/18. These are set to cost around £4.1 billion by 2020/21. Adding these figures leaves a total cost in 2020/21 of approximately £5.4 billion.
The Chancellor instead could have raised the threshold of National Insurance Contribution (NIC). In 2014 the independent Institute for Fiscal Studies investigated aligning the income tax personal allowance and NICs thresholds at £11,000 in 2014/15. They estimated the cost to be a very similar amount to raising the personal allowance to £12,500, around £12 billion, but they highlighted that raising National Insurance thresholds, rather than just the income tax personal allowance, benefited the low paid. Those paying National Insurance but earning below the personal allowance will benefit and National Insurance is only taxed on earned income – whereas income tax is levied on other forms of income, such as savings – so the gains for workers are larger at a given cost to the government.
At the same time the Tories confirmed their cuts to corporation tax. At a time of business uncertainty due the Government’s shambolic approach to the deal they want from Brexit, this will do nothing to raise the low levels of business investment. Instead, the Tory low-investment economy could have benefitted from targeted investment allowance increase not even lower corporation tax.
Commenting on the Autumn Statement, Shabana said:
“Theresa May, on taking office, said that she wanted Britain to be a country that works for everyone, and the new Chancellor said he would reset the economy.
But at the first major opportunity to set things right, we have seen a continuation of the last 6 years of Tory rule which has left us with a low-wage, low productivity economy.
Tax cuts for business and reducing income tax for the better off will do nothing to help the average working citizen and I fear that the Tories are providing too little, too late with their much needed investment spending”.