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Published: Thursday 4th December 2014 by The News Editor
George Osborne’s £800 million stamp duty cut has come into effect following a pre-election Autumn Statement aimed at persuading voters to let him “finish the job” of repairing the nation’s finances.
But the Chancellor’s plans for further significant spending cuts in the next Parliament came under fire from Liberal Democrat Cabinet minister Vince Cable, who said the Tory proposals to “brutally” curb budgets were not achievable.
The Chancellor will have to pare back the rate of government spending as a proportion of gross domestic product (GDP) to its lowest level in 80 years as he battles to wipe out annual borrowing, official forecasts suggest.
Verdicts on the Chancellor’s plans will be delivered later by experts including the respected Institute for Fiscal Studies (IFS) think-tank.
The shake-up of stamp duty was the most eye-catching policy in a package which gave an indication of the difficulties still facing the public finances.
Mr Osborne was forced to admit that weak tax revenues mean the deficit is not falling as fast as hoped and will be more than £90 billion this year.
But he pointed to forecasts of surging 3% growth and said the country faced a choice in May between deciding to “stay the course” or to “squander” the recovery.
The Chancellor insisted the UK’s budget deficit had been halved since 2010 and was still forecast to fall in every year. By 2018/19 the Government is due to record a surplus of £4 billion.
The new stamp duty regime scraps the long-standing “slab” system, which sees buyers charged a percentage of the full purchase price as soon as the value hits thresholds.
Instead there will be a “slice” approach, with different percentage rates charged to each portion of the price.
There will be no levy under £125,000, then 2% up to £250,000, 5% to £925,000, 10% to £1.5 million, and 12% above that.
Mr Osborne said the reform represented an overall tax cut of £800 million a year, and would save buyers of an average £275,000 home £4,500.
Only buyers of homes that cost more than £937,000 will see their bills go up. Stamp duty on a £5 million house will rise from £350,000 to £514,000.
Among the other measures unveiled by the Chancellor were:
:: Inheritance tax exemptions for aid workers who go to help with the Ebola crisis;
:: Crackdown on tax avoidance, including a 25% levy on firms that divert profits overseas;
:: Non-dom charges to be increased for people who have been in the UK more than 12 years;
:: £1.2 billion revenue from bank Foreign Exchange trading fines to go to GP practices;
:: Air Passenger Duty to be abolished for under-12s.
The Chancellor acknowledged that “substantial savings” in public spending will still be required in the next Parliament. They are expected to be closer to £30 billion than the £25 billion envisaged before.
Tensions within the coalition about how to finish the job of balancing the books by the end of 2017/18 burst into the open as Business Secretary Mr Cable said he had made “very, very clear” his opposition to Tory plans to achieve the goal by cutting departmental budgets and welfare, without increasing taxes on the wealthy.
IFS director Paul Johnson told the BBC: “The Chancellor has said he wants to reduce welfare as well as departmental spending. Even if he reduces welfare – and that’s not easy – there are still big cuts to come on departmental spending.
“To be fair, it has proved easier than expected to do over this Parliament, but of course it’s going to be more difficult the longer you carry on.”
Mr Cable said the Autumn Statement delivered by Mr Osborne was a coalition effort and he was “very happy” to sign up to it, but there were major divisions between the two governing parties about how to proceed with the deficit reduction effort after their joint plans ended in 2015/16.
Lib Dem leader and Deputy Prime Minister Nick Clegg, whose absence from the Commons for the Autumn Statement to go on a regional visit to Cornwall raised eyebrows, has described Tory plans to balance the books by cutting departmental budgets and welfare without raising taxes on the wealthy as “complete and utter nonsense”.
Mr Cable said his Conservative colleagues wanted to cut public spending “rather more brutally than we think is necessary or desirable” and their plans were “simply not realisable”.
Treasury Chief Secretary Danny Alexander hinted that including extra taxes for the wealthy could be a deal breaker in any coalition negotiations next May.
He told BBC2’s Newsnight: “I argue, as a Liberal Democrat – something the Conservatives disagree with – that additional taxes on the wealthiest in society are going to be an important part of that period (after 2015/16), because the job doesn’t just have to be finished, I believe it has to be finished fairly as well.
“That’s why you have to have things like extra taxes on high-value property.”
He added: ” We will set out in good time the four or five things that will be most important to us in our election manifesto. One of them will be finishing the job, and finishing it fairly.”
The independent Office for Budget Responsibility said the scale of cuts required “would pose a significant challenge”.
It suggested that government consumption of goods and services would fall to its lowest level as a proportion of GDP since 1938, with 80% of the reduction in the deficit still needed having to be found by squeezing day-to-day spending.
From 2009/10 to 2019/20, spending on public services, administration and grants by central government is projected to drop from 21.2% to 12.6% of GDP and from £5.650 to £3,8880 per head in current prices.
Around 40% of these cuts are expected to have been delivered during the current Parliament, with around 60% to come during the next.
Published: Thursday 4th December 2014 by The News Editor