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Coffee House

George Osborne’s taxing dilemma

27 July 2014

11:00 AM

27 July 2014

11:00 AM

Some of what David Smith, author of the essential Economic Outlook column in the Sunday Times, says today will be salve to George Osborne:

‘…the government intended to spend £722bn in the 2013-14 fiscal year. In fact, it spent £714bn. Spending has been lower each year than set out in 2010. Current spending was originally intended to be £679bn in 2013-14. In fact, it was £668bn. Unusually for any government, spending has come in comfortably within budget. There has been no slippage.’

Other parts will not:

Where there has been slippage is in tax receipts, which have been weaker than expected. A small amount of that was due to deliberate policy choices — not raising fuel duty and increasing the personal income tax allowance to £10,000 more quickly — but most of it was not.

The weakness of the recovery until 2013 — due in part to deficit reduction but mainly weak credit, the squeeze on real wages and the eurozone crisis — is what hit tax receipts.

Smith says that the economic recovery will give tax receipts a much needed boost, which will help to close the £95bn deficit.

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These economic factors are politicised by proximity of the election. Smith and others argue that the challenge is to sustain the recovery into the foreseeable future: to place the economy on an even keel and make up lost ground through tax receipts. There are others, though, who call for tax cuts; the Daily Telegraph and the CPS have been making common cause on the 40p rate threshold.

The same dilemma confronted Ken Clarke in 1997: seduce voters with tax cuts, or try to force an error from Labour by holding course. Clarke plumped with the latter option. The autumn statement will be Osborne’s last chance to change course. Labour, of course, may help Osborne’s political challenge by making unforced errors, such as announcing more taxes on gambling and Premier League football. Such proposals send a clear message about a political movement; it’s like the Puritans banning mince pies.

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