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If speculation that the Chancellor will maintain an 80:20 ratio on cuts and tax rises is confirmed in next week’s Autumn Statement, it will be the end of ‘the rich shouldering the greatest burden’, according to the IPPR think tank.

Nick Pearce, IPPR Director, writing on his blog, says:

“In the run up to a Budget or Autumn Statement, one piece of paper becomes the most important in Whitehall: the “scorecard”. This is the table which sets out the net effect of the government’s planned decisions; how much is raised in revenue and how much is spent on services and/or foregone in tax cuts. When the Budget is announced, it is published in the Treasury document as a summary table of decisions. It is the place to look if you want to get behind the spin from the Chancellor, since it will often contain sneaky measures that raise money but which haven’t featured in the press briefing and it tells you the truth about how much each individual decision is really worth. The figures tell the story.

“Next week’s scorecard will be especially interesting, since although a lot of the headline attention will focus on whether the Chancellor has missed his debt target and whether spending cuts will be extended through to 2017/18, we are likely also to get quite a few important tax and spending decisions. This is because the Chancellor wants to set out the basic arithmetic for government spending in 2015/16, the final year in which the coalition will govern (for a matter of a month before the election), while at the same time making further progress on welfare cuts and responding to political pressure on fuel duty.

“It has been reported that the Chancellor wants to maintain the headline 80:20 ratio between spending cuts and tax rises for the fiscal consolidation in 2015/16. Currently, the implied ratio is 96:4 between cuts and tax rises. Using the figures from the March 2012 Budget, he would need to find £22.4 billion in cuts and £5.6 billion in tax increases to shift the ratio to 80:20. Of course, the UK’s economic performance has deteriorated since the Budget, so the Chancellor could be faced with a bleaker fiscal scenario, as both the SMF and the IFS have recently set out. But assuming that the rate of fiscal consolidation is maintained as planned in 2015/16, we can expect cuts and tax increases of this order of magnitude.

“How might he raise the taxes? Restricting higher rate pension tax relief further would be fair and it would raise tidy sums. If all pension contributions were restricted to basic rate relief, the Treasury would raise £7 billion, but a sweeping move of this kind is unlikely. Instead, the Chancellor could further reduce the annual or lifetime allowances. The Resolution Foundation recently estimated that restricting relief to a lifetime allowance of £1 million would raise up to £1.5 billion a year.

“The Chancellor has also spent the summer quietly consulting on a new holding charge on properties valued at over £2 million owned by non-doms. This could be presented as a “son of mansion tax” and it would help further in taking the heat out of the high-end London property market, which has become a global reserve currency for the word’s super-rich. Further stamp duty increases for high value properties have also been mooted – beyond the newly introduced 7% rate on properties over £2m (which is planned to raise £180 million next year). Putting all this together might conceivably get the Chancellor to over £5 billion, but he’s likely to need something more to get the whole way.

“The Chancellor has also indicated that he is seeking £10 billion of welfare cuts by 2016/17. To get to that figure, the Treasury would need to find £6.6 billion in 2015/16. A freeze on working age benefits in 2013/14 and 2014/15 is likely to give him the lion’s share of this, since it is like compound interest in reverse: if you cut the baseline in 2013/14 and freeze it again in 2014/15, the net effect is higher savings by 2015/16.

“There are also other measures to factor into the equation. Delaying the fuel duty increase again will cost £550 million. Raising the Personal Tax Allowance by £1,100 to £9,205 from April 2013 cost the Chancellor a whopping £3.3 billion at the last Budget, so any further progress on that score might wait until next year’s Budget. But if he wanted an eye-catching stimulus measure he could announce a further £100 in tax free income, at a cost of £590m in 2013/14. An announcement of extra funding for childcare has also been suggested, which if done properly, would be better targeted than raising the personal tax allowance and more effective at lifting the employment rate.

“Overall, however, the consequence of holding to an 80:20 ratio on cuts and tax rises is that the burden of further fiscal consolidation will be carried overwhelming by those in the lower income deciles, since they rely most heavily on tax credits and social security benefits, and gain most value from public services. By definition, if the ratio of cuts to tax increases is 80:20, the Liberal Democrat ambition that the rich shoulder the greatest burden will not be achieved. That is a certainty. Next week’s Autumn Statement may do many things, but it is unlikely to be progressive.”

Notes to Editors

Nick Pearce’s full blog is available here:

http://bit.ly/NP121129

For more on IPPR’s analysis of the tough choices in the next Spending Review, see:

http://ippr.org/press-releases/111/9656/no-easy-options-in-next-years-spending-review

Contacts

Richard Darlington, 07525 481 602 r.darlington@ippr.org