George Osborne, the Chancellor of the Exchequer, yesterday set out his spending plans for the next five years, as well as updating Parliament on the state of the economy and the Government’s economic plans following the Summer Budget.
Ahead of the Spending Review, the two most contentious and politically sensitive issues were the Chancellor’s proposed cuts to tax credits and cuts to police budgets. In a hugely significant move, the Chancellor has now announced that he has abandoned both these plans, and will as a result breach the self-imposed welfare cap in the first years of this parliament. The Chancellor promised to listen to dissenters, and has followed through on this promise. This now creates a politically tricky situation for the Opposition, particularly through the Shadow Chancellor’s pledge not to make political capital should Mr Osborne reverse his plans on tax credits.
Further evidence of the Chancellor listening to critics came in the form of changes to the so-called “tampon tax”. The Chancellor has announced that he will seek to change the rules at EU level, but in the meantime will divert the VAT charged on women’s sanitary products to providing extra funding for women’s health charities.
The tax credits and police budget U-turns are brave moves by Mr Osborne, but underlines his reputation as a highly political Chancellor. The Chancellor’s speech also enhanced both his and David Cameron’s reputations as lucky politicians. While an examination of the detail of the Spending Review will show where the hard decisions have had to be taken, the Office for Budget Responsibility’s revised forecasts have been extremely helpful to the Chancellor, with better than expected tax receipts and lower debt interest giving the Chancellor greater latitude in his plans. This latitude has enabled the Chancellor to say he will meet many of his targets, such as achieving a £10bn budget surplus by 2020, which many had predicted would have to be lowered in order to mitigate changes to tax credit plans, for instance.
However, the pre-speech prediction of a general shift of debt from state accounts has proved to be accurate, and is part of a broader theme of a transfer of responsibility away from the centre. It was widely feared that this Spending Review would see austerity taken to a new level, stretching the British public to breaking point. But the announcements in the Chancellor’s speech suggest a very different, and rosier, future for the next five years
The political significance of the Chancellor’s speech should not be underestimated. It is being presented as a continuation of the Conservatives’ “long-term economic plan” – and certainly considerable work, with months of negotiations, has gone in to this. It is true that this is the latest chapter in the Conservatives’ plan to re-position the UK economy, eradicating the deficit and tackling the national debt. But this is also a statement of intent from the Chancellor, to position himself as the next Prime Minister, with David Cameron due to step down prior to the next General Election.
William Thavenot, Account Manager, Public Affairs
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November 20, 2023
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