Overall, not bad. Better than expected. In two regards, a pleasant surprise.
That was the verdict from business on the Chancellor’s Autumn Statement. In the strange, blurry world of Coalition government, we’ve become used to the trailing of announcements in the run up to the Big Day. So, among others, we’ve had a tunnel to be built under Stonehenge, strengthened flood defences, a new town-sized development at Bicester, a lift for the NHS, and investment in the treatment of child eating disorders.
They came thick and fast. So, on Monday, the Deputy Prime Minister Nick Clegg was visiting Wiltshire and the Pennines to mark the road upgrades. On Tuesday, Clegg was claiming credit for having secured extra funding for mental healthcare.
All received valuable air time. But we should realise by now this is the warm-up, that none can detract from the star turn.
So, while the City shrugged and pundits enjoyed pointing out that some of these pledges had been made before, George Osborne was rehearsing the real punch lines. There were four: higher growth and a lower rise in the borrowing bill; review of the reviled business rates; an instant overhaul of stamp duty; and the diverted profits tax on multinationals.
In pictures: Chancellor George Osborne delivers his Autumn Statement
There were others, but these were the ones around which his act was built – and were designed to silence his critics, and clear the path towards next May and the general election. While attention focused on a stuttering manufacturing sector, he could relax in the knowledge that services was powering ahead and giving the performance he wanted, regardless. Talk of attempts to rebalance the UK economy must be put in context: services, which covers everything from hairdressing to management consultancy, now accounts for three-quarters of UK PLC.
There’s a cunning aspect to Osborne. He’s mastered the art of the sleight of hand, of giving with the right, and taking with the left, and using a silver lining to obscure an underlying, tricky issue. Lower inflation has also led to savings in spending on welfare and pensions – an effect that no one saw coming. Likewise, by now, interest rates were expected to have risen. That increase was almost certainly factored into Osborne’s sums, but our lack of sustained recovery has seen them remain low – and hence he’s been able to revise them and point to a reduced cost of borrowing. Again, an outcome that was not predicted.
Businesses have been complaining for years about the business rates, a levy that harks back to 1601. They maintain that a system based on the size of the building they occupy rather than sales is simply anachronistic. For small shops, it’s crippling. And, versus new, online competition that pays nothing, totally unfair.
Part of the grievance is that the Government has been able to fix the take from the charge whatever the condition of the economy – regardless of what is happening to rents and sales.
Two years ago, in pressing for reform, Topshop owner Sir Philip Green gave the example of one of his stores where the rent came down from £500,000 to £125,000 over a five-year period. The rates payable, though, remained at £227,000 (Green argued it should have dropped to £50,000).
Green’s Arcadia group faces an annual rates bill of £150m. While it can afford such a sum, smaller retailers struggle. As for the internet sellers, the amount they must find is paltry – Asos, which has sales of more than £700m, has to cough up £935,000.
The case against business rates is unarguable – the UK has the highest charge of any EU member state. But the proceeds are put to good use, mainly to provide local services such as police and fire brigade.
Osborne has learnt from his master, a Prime Minister who likes to kick any thorny problem into the long grass, while giving the impression of taking action. David Cameron’s preferred route is the independent inquiry. That’s what his colleague has done with business rates – to promise a full review which is not due to report until the Budget of 2016.
It’s smart. Business is delighted since a review is better than nothing at all; while there is no awkward filling of a revenue hole required since it’s only a review.
That’s got the business community purring, and enabling the Tories to call themselves the party that understands the needs of enterprise. Another blow in favour of aspiration was struck with the immediate stamp duty reform.
Instead of jumping in “slabs”, the tax will rise gradually like income tax. The top rate of 12 per cent will only be paid by those buying a house of £1.5m or more. In one go, Osborne has knocked the stuffing out of the Labour and Liberal Democrat proposed mansion taxes. Again, radical, unexpected and politically fiendish.
The public has been outraged by the lack of taxes paid by US corporate giants, such as Starbucks, Amazon and Google. Osborne has taken up the little man’s sword by saying he will ensure they pay their fair share (but without driving them away from the UK completely).
It looks good but in reality it takes no account of what other countries might do. And it pays no heed to double-taxation treaties which ultimately determine where a company pays its taxes. Osborne says it will raise £1bn over five years, which sounds a lot, but he also knows that is a tiny amount versus the profits those companies make.
Osborne has got the numbers to give a gloss to an economy that remains fragile; he’s given the business community what it wants without actually giving them anything; he’s boosted home buying, and struck an election blow; he’s been seen to be tough on tax avoiders without hitting them too hard. He’s one clever Chancellor.