Lord Flight is Chairman of Flight & Partners Recovery Fund, and is a former Shadow Chief Secretary to the Treasury.
The Chancellor described his objectives as delivering a plan to tackle the cost-of-living crisis and rebuild our economy, where the three priorities are stability, growth and public services. I believe the first priority was to restore UK creditworthiness, which had been seriously knocked as the result of Liz Truss’s team having not persuaded the market of their proposals. There was the need to give the world confidence in our ability to repay our debts. Confidence has been successfully restored as measured by the recovery in Sterling and the reduction in interest rates.
The Government’s economic priority is to get inflation down where a sharp fall in inflation is expected by the middle of next year. The main cause of the inflation has been energy prices which have fed through to other prices. The Government is proposing two new fiscal rules – the first is that underlying debt must fall as a percentage of GDP and the second is that public borrowing must be below three per cent of GDP. The Chancellor’s Statement also delivers a consolidation of £55 billion and means inflation and interest rates end up significantly lower.
The Government is pursuing a balanced economic policy which should help recessionary pressures to be more shallow. We want lower taxes and sound money. The Government’s consolidation of £55 billion means inflation and interest rates end up significantly lower. The cost of the £55 billion consolidation is just under half on tax and just over half on spending.
The ongoing domestic problem of the UK economy is the NHS. It shows the symptoms of any free goods having open-ended demands. There are now seven million cases on waiting lists. While costs have risen significantly, the NHS is doing less than it was in 2019. The volume of most justifiable claims has increased the availability of free sickness benefits, and welfare support have also become a significant motivation to migrants – where effectively the State keeps them. It is morally wrong and outrageous that at a time of severe labour shortage, too many of working age are on benefits rather than employed. The proportion of citizens in work continues to be fewer and to continue declining. Those working are effectively being squeezed even harder to pay for more tax for extra welfare costs and an inefficient health service. If this is allowed to continue it will lead to long-term economic decline.
I believe the tax increases are on balance too large and will damage recovery prospects. This looks to be too harsh on “middle England”, both in terms of economics and politics. Tax as a percentage of GDP will increase by one per cent over the next five years. From April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty. Over the next five years, the energy profits levy will be increased from 25 per cent to 35 per cent. There will also be a new temporary 45 per cent levy on electricity generators. Together these taxes raise £14 billion next year. The Government has decided to stick with the Triple Lock and for the poorest pensioners the Chancellor will increase Pension Credit by 10.1 per cent – worth £1,470 for couples.
The most positive fiscal measure is a Business Rates cut of nearly £14 billion over the next five years. Two-thirds of properties will not pay any more next year and thousands of small high street shops and restaurants will pay less.
The Government has identified the areas where regulation and rules are currently EU based – this includes digital technology, the life sciences, green industries, financial services and advanced manufacturers. The Government identifies the key ingredients for growth as energy, infrastructure and innovation.
The Government is to be commended in being the second highest contributor to Ukraine, after the US, providing £2.3 billion annually of military support. The Government is committed to continuing to maintain the defence budget of at least two per cent of GDP, consistent with our NATO obligations.
Perhaps the most surprising is that this Budget favours the old at the cost to the young. For many young professionals the stages of economic life of marrying, having children and building a nest egg for later years are now out of reach.
An important measure which has received scarce cover is the raising of Corporation Tax from 19 per cent to 25 per cent. Hunt relies significantly on stealth taxes. The intent is a balanced path to stability, tacking inflation to reduce the cost of living and protect pensioners savings while providing support to the economy. Crucial is the performance of the wider economy.
What a number of commentators appear not to have appreciated is that the Autumn Statement was about re-establishing stability and market confidence, which it has already achieved. The Statement leaves open the possibility of opportunities over the next two years to relax the planned fiscal restraint, if global economic circumstances improve. Let us, therefore, hope that it turns out not to be necessary to implement all the planned tax rises