By Giorgio Buttironi
As George Osborne readied to take his place at the dispatch box in order to deliver his final autumn statement before next year’s general election, he sought to address criticism towards the government’s failure to balance the budget before the end of this parliament. Prior to his speech in the Commons, it was suggested he would place much stress on the “long-term economic plan” that is putting Britain ’s economy back in shape, making it the fastest growing country in the G7. Although Osborne admitted that the government was unable to meet its original commitments on the deficit and borrowing levels, he was prompt in drawing attention to three key facts: a sizeable rise in employment, a declining inflation, and a halved budget deficit by the end of 2014/2015. This would serve to vouch for the effectiveness and need to stick with the long-term economic plan so passionately advocated by the Conservatives. This appointment with the annual parliamentary agenda was not expected to bring festive gifts with itself, but was rather to be taken as a cautiously optimistic reminder that the economy is recovering. And yet, the Autumn Statement of 2014 was full of unexpected announcements: figuring prominently among those was a radical overhaul of the three-hundred year old Stamp Duty Land Tax.
Under the new rules, which have taken effects within 24 hours of the chancellor’s announcement, a progressive band system was introduced. According to the government, people “will only pay the rate of tax on the part of the property price within each tax band - like income tax”. Properties under £125,000 will be completely exempt from stamp duty, with a series of tax bands beyond this amount: 2% (£125,001-£250,000), 5% (£250,001-£925,000), 10% (£925,001-£1,500,000), and 12% (more than £1,500,000). Therefore, when purchasing a property at the average UK house price of £275,000, the taxpayer would pay just £3,750 - as opposed to £8,250 under the previous rules - and be £4,500 better off. The government stated that “this will make the system fairer, and means that stamp duty will be cut for 98% of people who pay it”. On the other hand, more expensive properties will face a steep increase in stamp duty, leading several commentators to label this reform as bringing about a “mansion tax in disguise”. According to government calculations, properties whose value ranges between £950,000 and £5 million will face increases in stamp duty from £750 to £163,750. Nevertheless, the recent overhaul can hardly be regarded as a disguised mansion tax for two main reasons. Firstly, while the plans for a mansion tax would most likely affect people who are asset-rich but cash-poor, the stamp duty reform applies to individuals who have the means to purchase such highly-valued properties. And secondly, stamp duty only applies upon property purchases, whereas a mansion tax would hit the taxpayer more than £3,000 per year depending on the estimated property value. In addition, considered alongside previous government initiatives such as Help to Buy, this landmark overhaul of stamp duty will make it easier for people to get onto the property ladder.
The Chancellor also promised to provide £2 billion of extra funding per year for the National Health Service in England, having identified what was defined as a £10 billion underspending in the NHS; an additional £1 billion would be invested in general practitioner services, from the collection of fines on banks involved in the foreign exchange rigging scandal. This measure is intended to show that the Conservatives can be trusted with managing the NHS, which has often been defined as the government’s weak spot, where the Labour Party is much stronger. Osborne reiterated that “you can only have a strong NHS if you have a strong economy”, thereby linking additional money availability in healthcare to sound economic management of government finances. Shadow Chancellor Ed Balls replied by accusing Mr Osborne of “inventing” cash and arguing that the Conservatives cannot be trusted with running the NHS.
George Osborne also announced a crackdown on big firms using tax avoidance schemes to dodge taxes owed in the United Kingdom. The Diverted Profits Tax - already rechristened as the “Google Tax” - will be levied at 25% from 1 April 2015 and could raise around £9 billion, Osborne claimed in the Commons on Wednesday. Some big firms have come under the public eye for the appallingly small contribution they make to the exchequer in spite of their massive earnings throughout the country. It remains of course to be seen to what extent such a levy will be effective in its intended aim, especially in light of existing global treaties and commitments with third countries and organisations.
The reactions from political parties have been numerous, with the Labour Party stressing that the government failed to keep its promises to balance the budget and missed its borrowing targets by £5 billion; Ed Balls added that people are worse off under this government and accused Mr Osborne of “brushing away the facts”.
The Liberal Democrats claimed that their key ideals were at the centre of this autumn statement, with Danny Alexander - Chief Secretary to the Treasury - arguing that the statement reflected his party’s commitment towards “a stronger economy and a fairer society”.