The economic future is bleak, but the chancellor wants to stick to his deficit reduction plan – so something has to give. Is he planning a VAT hike to 22.5 per cent? A stamp duty rise on luxury homes?
The UK will have a difficult time hitting its deficit reduction target in 2012-2013, with higher than expected public sector borrowing of £8.6bn in October. Economists predict more pain but George Osborne has already hinted there may be a few surprises when he speaks at 12.30pm.
“The situation under Labour where top people in the City were paying lower tax rates than their cleaners has been ended. And we are hunting down those who evade tax wherever they try to hide,” Mr Osborne said on Sunday, writing in the Sun.
“But we understand that fairness isn’t just about taxing the rich. It’s also about ending the something for nothing benefits culture.”
The chancellor was short on specifics. But if speculation over the past few days turns out to be correct, he will unveil a wealth tax on the rich and a revised welfare cuts package in a mini-budget designed to hit both ends of the pay scale.
There may be a stamp duty rises on sales of luxury homes in conjunction with a squeeze on benefits. The chancellor may also give a £1bn boost to small British exporters, the Sun reported citing unnamed sources.
The Sunday Times said the chancellor would cut the £50,000 annual tax relief cap on pensions to as little as £30,000 today. That change would reportedly bring in up to £1.8bn a year.
“My predictions would be: delay the targets, have smallish increases in public capital spending, a small reduction in taxes and possibly reduce the amount of money that can be put in a pension scheme that can escape tax,” Richard Jackson, an economics professor at the London School of Economics, said in an interview with Channel 4 News.
Others predicted the introduction of levies on homes valued at £2m or more, an annual charge as high as £140,000 on properties owned by offshore companies and capital gains tax on the sale of luxury homes by non-residents who aren’t naturalised.
Among the many possible announcements on 5 December –
“In the short run the economy probably needs less austerity rather than, more and the best approach in the autumn statement is for the chancellor to take the weakening in borrowing on the chin and emphasise that medium-term spending restraint appears to be working,” David Tinsley, UK economist at BNP Paribas, said.
“Coupled with the government’s funding for lending scheme, announced earlier this year, aimed at boosting lending to non-financial corporates and households, the chancellor should be in a position to argue… he has significantly ramped-up efforts to boost business lending,” Philip Shaw, an economist at Investec, said.
“Something’s got to give. The government settle in to total disaster without doing something about that,” Professor Jackson told Channel 4 News.
The Office for Budget Responsibility is to release its forecasts on UK economic growth in 2013 and beyond just ahead of the chancellor’s statement, and the smart bet is that the OBR will cut its forecasts for UK economic growth in 2013.
Once that is done, the chancellor will uses the autumn statement to update MPs on the state of the economy and the public finances. Whether you are seated in parliament or at home, expect an uncomfortable stinging sensation at 12.30pm.