Select committee inquiry
Autumn Statement 2014
Closed
What the inquiry looked at
“The Chancellor of the Exchequer delivered his Autumn Statement to Parliament on 3 December 2014. The Treasury Committee took evidence from the Chancellor and a number of experts on its contents and published its findings in a report published on 13 February.”
The committee's words, from the inquiry page on parliament.uk ↗.
What the government said
The government responded on 27 March 2015.
Summary written by Accountability Index from the government's response.
The government's response recognises the importance of timely information for the OBR, agrees with the Committee on some transparency points, and declines to change stamp duty on non-residential property, while defending its fiscal framework and tax measures.
- On distributional analysis and policy definitions, the government agrees that publication is "an important contribution to transparency" and that "there should be transparency over definitions of policy measures". If it disagrees with the OBR, "an explanation would be provided", with the format depending on circumstances.
- On the new Charter for Budget Responsibility, it states that describing the former targets as aims "does not make a substantive difference to the fiscal framework".
- On the Diverted Profits Tax, it says action at national level is not precluded by the OECD project, and is "considering where changes to the final legislation for Finance Bill 2015 are appropriate". HMRC will issue further guidance "before 1 April 2015".
- On non-residential stamp duty, the government "does not feel it appropriate to make changes to SDLT on non-residential properties at this time", citing differences between the two markets.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 10 November 2014 to its close on 30 March 2015.
- Oral evidence 3 sessions
- Report 13 Feb 2015
- Government response 27 Mar 2015
What it recommended 2 recommendations · 21 conclusions
1The Treasury has again been unable to provide all the information needed by deadlines agreed...
Concluded (the committee's words)
The Treasury has again been unable to provide all the information needed by deadlines agreed with the OBR. The Government may, as the Chairman of the Office for Budget Responsibility suggested, have decided that for political reasons this was a “price worth paying.” This would set an undesirable precedent. The work of the Office for Budget Responsibility depends on the Treasury meeting the agreed deadlines.
2We welcome the OBR’s innovation of providing uncertainty ratings for policy costings.
Concluded (the committee's words)
We welcome the OBR’s innovation of providing uncertainty ratings for policy costings.
3We recommend in future that the OBR publish a breakdown of the uncertainty rating assessment...
Recommended (the committee's words)
We recommend in future that the OBR publish a breakdown of the uncertainty rating assessment against the three criteria for all announced measures at Autumn Statements and Budgets.
4The Committee welcomes the Government’s continued publication of the distributional analysis of the Government’s policy...
Concluded (the committee's words)
The Committee welcomes the Government’s continued publication of the distributional analysis of the Government’s policy changes. The Committee recommends that the next Government continue with this important aid to transparency.
5The current inflation target set by the Government is symmetrical, and is 2 per cent...
Concluded (the committee's words)
The current inflation target set by the Government is symmetrical, and is 2 per cent at all times. Several witnesses alluded to the risks of very low inflation and subsequent deflation, including the Chancellor. The Chancellor has publicly welcomed the current level of inflation. This is not likely to help anchor inflationary expectations. The Governor of the Bank of England is required to write to explain to the Chancellor why inflation has fallen below 1 per cent. It is important to avoid mixed messages on inflation targeting.
6The Bank of England should undertake research on the effect of net migration, and the...
Concluded (the committee's words)
The Bank of England should undertake research on the effect of net migration, and the potential for future net migration, on the supply of labour and wage growth as part of the work on meeting the MPC’s remit. The Treasury should ensure that discussions within Government on immigration policy fully consider the requirements of the economy.
7Witnesses have emphasised to the Committee that productivity growth will be the key to sustainable...
Concluded (the committee's words)
Witnesses have emphasised to the Committee that productivity growth will be the key to sustainable improvements in wages, economic growth and the public finances. Yet productivity growth has once again fallen short when compared against the OBR’s forecast in March 2014. Should this pattern continue, the OBR may have to consider whether its forecast of productivity growth returning to its long-term trend rate remains an appropriate one.
8For the fifth Economic and Fiscal Outlook in a row, the OBR forecasts that the...
Concluded (the committee's words)
For the fifth Economic and Fiscal Outlook in a row, the OBR forecasts that the Government will meet the rolling fiscal mandate, but not the supplementary target. 60 Autumn Statement 2014 The Government has, as in previous Budgets and Autumn Statements since December 2012, not proposed any action in order to meet the supplementary target.
9The OBR is required to provide a forecast of public spending over the next five...
Concluded (the committee's words)
The OBR is required to provide a forecast of public spending over the next five years. From 2016–17 onwards it has used the Government’s policy assumptions to achieve this. The implied path of public spending set out by the OBR from 2016–17 indicates that further fiscal consolidation will be achieved primarily through reductions in departmental spending. It is, though, important to recognise that these policy assumptions do not reflect the view of either of the coalition parties on how fiscal consolidation should be achieved.
10Institute for Fiscal Studies calculations show that following the Government’s outlined path will lead to...
Concluded (the committee's words)
Institute for Fiscal Studies calculations show that following the Government’s outlined path will lead to a total cut to DEL in real terms of 22.2 per cent between 2010–11 and 2019–20. However, within DEL, the government has so far chosen to protect certain departmental budgets from budget cuts. If these protections are maintained, IFS calculations show that non-ring-fenced departments will have experienced real-terms budget cuts of 41 per cent between 2010–11 and 2019–20. As we have previously reported, ring-fencing will require spending reductions to be targeted on the diminishing budgets of the non-ring-fenced departments; and we have previously reported on the possible consequences.
11The Government’s new Charter for Budget Responsibility shortens the target date of both the fiscal...
Concluded (the committee's words)
The Government’s new Charter for Budget Responsibility shortens the target date of both the fiscal mandate and the supplementary target. It also now describes the former ‘targets’ as ‘aims’. Aims are generally considered to be less binding than targets. The Chancellor’s assertion that they amount to the same thing was surprising.
12The new Charter still relies on the OBR coming to a nominally authoritative view about...
Concluded (the committee's words)
The new Charter still relies on the OBR coming to a nominally authoritative view about the unmeasureable and unobservable output gap, something of which this Committee has been sceptical in the past.
13Furthermore, the current Charter for Budget Responsibility will become obsolete by 2016–17—the target date for...
Concluded (the committee's words)
Furthermore, the current Charter for Budget Responsibility will become obsolete by 2016–17—the target date for the supplementary aim. The Charter may therefore be better regarded as a statement of policy intention until then, rather than a long term fiscal rule.
14The Chancellor has said that the sharp cuts to departmental spending assumed by the OBR...
Concluded (the committee's words)
The Chancellor has said that the sharp cuts to departmental spending assumed by the OBR from 2015–16 can be mitigated by savings to the welfare bill. The experience of the past five years shows that the achievement of planned welfare savings depends partly on economic developments, particularly in the labour and housing markets, that are not within government control. It also depends on the timely implementation and operational success of any major reforms to the welfare system. Any decision to reduce welfare expenditure while protecting other specified areas will increase the proportion of savings to be found from other parts of the welfare bill.
15In its first assessment, the OBR has found that the Government is on track to...
Concluded (the committee's words)
In its first assessment, the OBR has found that the Government is on track to meet the welfare cap commitment. Although there was no disagreement between the Treasury and OBR on this occasion, the potential for disagreement over whether a measure is a “discretionary policy change” risks causing dispute between them in the future. In the event that the Treasury’s own view differs from the OBR’s, it should explain the reasons for this in the Budget or Autumn Statement Command Papers.
16Estimating the yield from anti-avoidance measures is inherently difficult.
Concluded (the committee's words)
Estimating the yield from anti-avoidance measures is inherently difficult. In response to this Committee’s recommendation from 2013, the OBR in the December 2014 Economic and Fiscal Outlook published its evaluation of all past avoidance measures since 2010. It found that there was no systematic bias across the costings—some produced higher returns, some lower. However, in cash terms, owing to the shortfall in the UK-Swiss tax agreement, significantly less revenue was raised in total than originally expected. The underperformance of a single measure with a large expected yield can more than offset better performance of a number of smaller measures.
17The restriction on loss relief for banks is the largest revenue generating measure in the...
Concluded (the committee's words)
The restriction on loss relief for banks is the largest revenue generating measure in the Autumn Statement, with an expected yield of £4 billion over the next Parliament. It has been assigned an uncertainty rating of ‘very high’. The OBR should continue to monitor the performance of all avoidance measures against their original costings.
18The assignment by the OBR of uncertainty ratings to each individual policy provides useful information...
Concluded (the committee's words)
The assignment by the OBR of uncertainty ratings to each individual policy provides useful information to outside observers. The OBR’s creation of uncertainty ratings could also encourage the Treasury to provide more information on their own judgement of the uncertainty of new policy measures. The OBR should compare its uncertainty ratings on policy costings of individual measures against the outturns, and report its findings in its Forecast Evaluation Report.
19Loss relief is an important element of tax planning for all firms across all parts...
Concluded (the committee's words)
Loss relief is an important element of tax planning for all firms across all parts of the economy. The Committee has previously highlighted the importance of certainty in the tax system in its 2011 Report, Principles of Tax Policy. Apparently lucrative tax raising measures against unpopular sectors of the economy, while attractive to governments, carry the risk of undermining the principle of certainty in the tax system. Uncertainty may well reduce the yield.
20Tackling tax avoidance, specifically the problems associated with base erosion and profit shifting, is an...
Concluded (the committee's words)
Tackling tax avoidance, specifically the problems associated with base erosion and profit shifting, is an internationally recognised problem which requires an international response. This is currently taking place in the form of the OECD’s base erosion and profit shifting project. The Committee notes the Government’s decision to announce a unilateral Diverted Profits Tax ahead of the conclusion of the OECD’s work. This should not be permitted to destabilise the international effort.
21The draft legislation is long and highly complex.
Concluded (the committee's words)
The draft legislation is long and highly complex. This is undesirable in itself, and is likely to be a source of uncertainty.
22In its Report Principles of tax policy, the Treasury Committee recommended as its first principle...
Recommended (the committee's words)
In its Report Principles of tax policy, the Treasury Committee recommended as its first principle that tax policy should be fair. By imposing thousands of pounds of additional tax liability owing to a penny’s difference in a property’s price, the old ‘slab’ structure of residential stamp duty clearly breached this principle. The Committee therefore agrees with the Chancellor and the Institute for Fiscal Studies that the design of residential stamp duty was significantly flawed, and welcomes its reform in the Autumn Statement. However, the unfair and distortionary slab structure continues to apply to stamp duty for non-residential property transactions. The Government should explain the reasons for reforming residential stamp duty in this way but not making a similar reform of non-residential stamp duty.
23The Committee notes this example of how fiscal devolution can lead one government to alter...
Concluded (the committee's words)
The Committee notes this example of how fiscal devolution can lead one government to alter tax policy in response to the decisions of the other. With further fiscal devolution to Scotland, this is likely to be more common.
Evidence
Oral evidence sessions 3
- 17 Dec 2014No witnesses recordedparliament.uk ↗
- 10 Dec 2014No witnesses recordedparliament.uk ↗
- 9 Dec 2014No witnesses recordedparliament.uk ↗