week’s Autumn statement by the chancellor will be like the proverbial curate’s egg: good in parts, bad in others, and as a result not entirely digestible. While bits of George Osborne’s plans rightly focus on liberating companies and individuals, others involve creating special schemes, funds and interventions, many of them gimmicks, and seek to turn the government into a semi-bank guaranteeing mortgages and lending to small firms. In the wake of the sub-prime crisis, such corporatist schemes fail the smell test. Taxpayers should not be asked to guarantee risky lending that a newly becalmed private sector refuses to countenance. It is crazy that parts of the government (the regulators) are telling banks to cut risky lending and hold far more capital against small business lending than they previously had to, while another part of the government (the Treasury) is complaining when they do so and will use taxpayers’ money to try and dilute the impact of the regulations. Joined-up government, RIP.
Some of the repeated shifts to the goal-posts are reminiscent of what used to happen when Gordon Brown was in charge. Take Osborne’s plan to hike the special tax rate on banks to ensure it still raises the £2.5bn planned: this is the third time the tax rate has been hiked in a year. When it comes to overall tax rates and levels of public spending and borrowing, as well as to his meddling tendencies, George Osborne is failing to differentiate himself sufficiently from his Labour predecessors.
It’s far from all bad, however. Motorists will thank the chancellor for deferring January’s 3p fuel duty rise, while there will be some, albeit minor, good news for energy intensive firms. Osborne should be commended for the government’s decision to exempt firms with under 50 staff from the Nest pension auto-enrolment scheme (though he should have postponed it for everybody). Chris Grayling’s bid to reduce health and safety red tape is equally welcome, assuming that it is more than mere rhetoric or trivial (as ever, I will believe it when I see it). The same is true of the reforms to employment law launched by Vince Cable – though, once again, change is taking a long time and various measures have been reannounced several times already, which is worrying.
Osborne’s bid to tap the private sector to invest and finance infrastructure projects is great, though it depends on how exactly it is executed. It is vital to avoid another private finance initiative-style fiasco, where taxpayers were taken for a ride and the main aim of the project was to keep liabilities off the government’s balance sheet. The real problem are planning restrictions; it is these, rather than demand, that are stopping investment. Plenty of companies would love to build a new airport – but they are not allowed to do so. It would be silly to invent a new layer of bureaucracy and government guarantees to encourage global funds to do what they would have done anyway under much more basic reforms.
Parts of the infrastructure plan that Osborne will announce tomorrow will come from extra public spending. This will rightly mainly be paid for by savings elsewhere, but two questions remain: will Osborne scrap what is left of pension tax relief for higher rate taxpayers? And what will happen to all of these plans if, as the Treasury increasingly fears, the Eurozone is about to face a truly devastating crisis? Let us hope Osborne has the answers.
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