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Mark Littlewood, Director General at the Institute of Economic Affairs, commented on the Spending Review and Autumn Statement

Geoorge Osborne yesterday made a one-way bet. His Spending Review announcements are based on two predictions: continually low interest rates and sustained strong economic growth, making our debt repayments lower than anticipated and tax revenues higher than expected. These are not unrealistic assumptions, but if either go off course, the savings announced today will not go nearly far enough.”

“The Chancellor should be applauded for his continued efforts to get the debt-to-GDP ratio back on a sustained downward trend. Yet despite all the talk of ‘savage cuts’ in this Spending Review, overall real government spending will increase by 0.3% from now to 2019/20.

“The large reductions to the budgets of certain departments are a consequence of the ring-fencing of huge areas of government spending as well as an array of new spending commitments. In the last election, the Chancellor said no more net tax rises would be necessary to close the deficit, but today’s Statement raises taxes and spending compared to July’s Budget.”

Tax credits

“The Chancellor made the right decision on tax credits and helped millions of low-paid people across the country. His previous changes would have significantly raised marginal tax rates for the low-paid, reducing the incentive to work and earn more. But these same adverse consequences will ultimately be felt by new Universal Credit claimants – meaning over time the negative economic impact may be the same.”

Pensions

“Unfortunately, savings are still being borne entirely by working-age people. In the face of a rapidly ageing population, the maintenance of the triple-lock is completely unsustainable as well as unfair. It may be politically popular, but expensive promises of this kind significantly add to the long-term debt challenge, and will lead to future tax rises.”

Devolution

“Devolving power to local authorities on council tax and business rates represents a small first step in the decentralisation of tax-raising powers, an important move in improving economic outcomes for people across the UK. But these come with significant central government conditions on how that money can be spent.

“Ultimately, fiscal decentralisation should be much more ambitious, allowing councils to finance their own spending as far as possible and granting the same powers to all local authorities – not just favouring certain cities who agree to elected mayors.”

Apprenticeship Levy

“The Apprentice Levy will save the government money, but at significant cost to employers. It’s highly likely it will be 'gamed' by firms rebadging their existing training programmes, displacing other forms of training, such as that for older workers, whilst most of the 3 million apprenticeships expected by 2020 will still be Level 2 NVQs, a far lower standard than those in countries like Germany and Austria. Harold Wilson's training levy 50 years ago was an expensive waste of time. Unfortunately this initiative looks likely have the same effect.”

Housing

“The Chancellor’s promise to build 400,000 new homes is headline-grabbing, yet subsidising housing is no substitute for liberalising planning. There is undeniable evidence that the UK’s inflexible planning laws are the cause of structurally high prices, yet our politicians are trying to circumvent, not tackle, this problem. The Chancellor is recognising the adverse impact of planning regulations, but rather than reforming swathes of red tape, he is simply exempting the government from existing regulations at the expense of the private sector.

“When schemes such as ‘shared ownership’ apply to households earning up to £80,000, it’s time the government wakes up to the fact that there is clearly a bigger structural problem behind the housing crisis.”

Notes to Editors:

To arrange an interview with an IEA spokesperson, please contact Stephanie Lis, Director of Communications at slis@iea.org.uk or call on 07766 221 268.

Methodology of 0.3% spending increase calculation – change Total Managed Expenditure adjusted to real terms using OBR GDP deflator between 2015/16 and 2019/20.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

 The IEA is a registered educational charity and independent of all political parties.