Spending Review and Autumn Statement 2015 report published

11 February 2016

Ahead of the government publishing its next Budget on Wednesday 16 March 2016, the Treasury Committee publishes its report on the Autumn Statement 2015.

The Report

Housing Policy

Were the measures taken to curb buy-to-let to have a substantial effect, they would come at a cost to the wider economy. Access to a well-functioning, affordable housing market, including for private rented properties, has been widely recognised to be crucial to labour mobility, and hence the overall efficiency of the labour market. Labour, Conservative and Coalition governments have for decades recognised the crucial importance of maintaining confidence in the buy-to-let sector, perhaps aware of the damaging, unintended consequences of the heavy-handed regulatory interventions by both Labour and Conservative governments of the 1950s and 60s. Any impediment to labour mobility will reduce employment, economic activity, and the economy's long-run productive potential. (paragraph 123)

The Committee is concerned about the focus of the Government's housing policy. Addressing the "home ownership crisis" must not come at the expense of a shortage of homes to rent. The Chancellor should make clear what he intends to do to help those who want or need to rent, and to ensure a healthy supply of properties in the private rented sector. (paragraph 124)

Chair's comments

Commenting on the Report and Housing Policy, Right Hon. Andrew Tyrie MP said:

"The measures taken to curb buy-to-let will come at a cost, not only for those who will now face higher rents, but for the wider economy. A failure to ensure that individuals have access to a well-functioning, affordable rental market will inhibit labour mobility and reduce economic activity.

The Chancellor's attempts to resolve what he calls a ‘home ownership crisis' should not come at the expense of the private rented sector. Housing policy in the UK has been in a mess for a long time – caused by the policies of successive governments over decades and, often, their unintended consequences. Sooner or later, more thoroughgoing reform will be essential."

The Office for Budget Responsibility's revisions

The improvements to the fiscal forecast were driven not by a fundamentally better economic outlook, as the Chancellor suggested, but by changes to the Office for Budget Responsibility's (OBR) modelling and assumptions. The OBR has altered its models and assumptions in a way that is favourable to the public finances on this occasion. It may subsequently alter them in an unfavourable way. Moreover, the focus on the £27 billion cumulative change over the five year forecast period distracts attention from the fact that the annual improvements were small, and certainly of a scale that could be revised away in the future. What was widely interpreted as a "windfall" may well prove illusory. (paragraph 15)

Chair's comments

Commenting on the Report, Right Hon. Andrew Tyrie MP said:

"Changes to the OBR's modelling and assumptions gave the Chancellor a fiscal windfall at the Autumn Statement. But what the OBR provided in the last set of forecasts, it may decide to remove in the next. If that were to happen, given the inflexibility of his fiscal rule, the Chancellor would have to raise taxes, cut spending, or abandon the rule.
The Treasury is downplaying this "rule" by using the term interchangeably with "target". The legislation used the word "objective". In any case, the legislation provides for suspension of the "rule", in the event that the OBR assess, as part of their economic and fiscal forecast, that there is a significant negative shock to the UK.* That was prudent.
Successive governments have committed themselves to, but then failed to meet their fiscal "rules" and "targets", as the Committee has been saying for many years. This "rule" looks no less vulnerable than the others from successive governments over the past thirty years."

* Defined as real GDP growth of less than 1% on a rolling 4 quarter-on-4 quarter basis.

Taxation

The tax-burden, which was 33.0 per cent of GDP in 2014-15, will rise to 34.2 per cent by 2017-18. The Chancellor's objective of moving to a "lower tax society" was not advanced by the measures contained in either the Summer Budget or the Autumn Statement. These will raise the tax burden faced by individuals and businesses, through new taxes, including the apprenticeship levy and the stamp duty surcharge, and the raising of less salient ones, including dividend and insurance premium taxes. (paragraph 25)

The need to raise further tax revenues is understandable, given the imperative to reduce public borrowing. The "tax lock", which prevents rises in national insurance, income tax and VAT, appears to be leading the Treasury to find additional revenues in less conventional ways. (paragraph 26)

Chair's comments

Commenting on Taxation, Right Hon. Andrew Tyrie MP said:

"The 'tax lock', which prevents rises in national insurance, income tax and VAT, appears to be leading the Treasury to find additional tax revenues in new and sometimes less transparent ways: the apprenticeship levy, the stamp duty surcharge, and increases to insurance premium and dividend taxation, are cases in point. The tax lock, in time, could distort the shape of the tax base.
The Chancellor's plan to move to a 'lower tax society' was not advanced by the measures contained in either the Summer Budget or Autumn Statement."

Further information

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