Liberal Democrat Newswire #29 is out: an Autumn Statement debrief

As with the Budget earlier in the year, the Liberal Democrat negotiating position was dominated by a desire to speed up moves towards that £10,000 income tax allowance.

This priority comes with significant risks because speeding up something means bringing its benefits forward but not securing something extra from the Liberal Democrat wish list. The risk therefore is that each piece of speeding up sees some Tory policies implemented in return, with the net effect being that the £10,000 income tax allowance is secured at a very high price.

Prioritising the £10,000 policy is also however playing to one of the party’s limited polling strengths – this is one of the handful of issues which the public both like and associate with the party.

The longer-term politics also look promising as if the £10,000 allowance is secured by 2015, it means the party can go into that general election arguing for a form of mansion tax, funds from which would be used to further increase the allowance so that anyone in a full time job on the minimum wage would pay no tax. That would be a potent combination of both a tax cut and a tax rise which the public overwhelmingly say they support in polls. It is rare for a party to be able to find popular policies which fit together neatly for both sides of that equation. It is also a combination that would be a clear point of differentiation from the Conservatives.

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Last Autumn, Nick Clegg and colleagues used up a lot of coalition political capital to get benefits increased fully in line with inflation. This time round they agreed to a three-year plan of pegging most benefit increases to the level of public sector pay increases, that is a 1% increase each year (aka a real terms cut).

Partly this was a simply matter of money and maths: a third of government spending goes on welfare and benefits for pensioners are still seen as largely untouchable by David Cameron.

However, on Monday Nick Clegg returned to that question of richer pensioners, arguing in a speech that the benefits received by the “wealthiest pensioners” need to be looked at again. Looked at, perhaps, but unlikely to be altered during this current coalition. That was more a matter of preparing the ground for the differences between the coalition parties at the next general election.

For the Autumn Statement, the calculation Clegg took was better the 1% peg than some of the other changes Conservatives were pushing for. In the list of things successfully stopped were:

• Conservative plans for £10 billion of welfare cuts;
• Eliminating housing benefit for the under-25s;
• Freeze out-of-work benefit payments completely; and
• Limiting child benefits to the first two children in a household.

That is a fairly significant list of details. And alongside that, the ‘triple lock’ for pensioners means the full state pension is going up by 2.5% in April 2013, benefiting not only those wealthiest pensioners but many other less well off ones too.

(Also worth noting are the Liberal Democrat successes on the spending front – protecting the international development budget at 0.7% of GDP – and on taxing the richest, with a real terms increase in tax thanks to that 1% figure also being applied to the top rate of income tax allowance, the capital gains tax allowance and the inheritance tax threshold, not to mention cuts in pension tax relief at the top end.)

Action on tax avoidance and evasion was a consistent theme of the pre-statement briefings, the statement itself and the post-statement interviews. Here are the top five steps announced:

1. An extra £77m a year for the next two years goes to HMRC to tackle tax avoidance and evasion. This is in addition to the £900m extra already announced.
2. A new ‘centre of excellence’ to sharpen up the work against offshore tax fraud and evasion.
3. Around £5bn coming in over the next six years as previously unpaid tax is recovered from people who sent money off to Switzerland.
4. A new agreement with the US to automatically secure information on potentially taxable incomes.
5. Plans continuing for the introduction of a General Anti Abuse Rule next year.

For a brief period of time it looked as if Danny Alexander might be a supporter of expanding regional pay beyond its current remit (principally London-weighting and in the courts service).

Those days however are now long since gone and Liberal Democrats successfully teamed up with many Conservative sceptics to block its expansion.

Whilst ruling out regional pay in the Autumn Statement, George Osborne did announce plans to implement the recommendation of the independent pay review body for performance related pay for teachers.

Quantitative easing and other unconventional monetary policies have come to dominate economic decision making and debates. Yet amongst politicians there is very little debate over the merits and details of particular monetary policy approaches beyond, “Help! We need lots of something”.

A generation of politicians used to arguing over fiscal policy were also used to monetary policy debates having been largely sidelined and settled by the creation of an independent Bank of England with an inflation target. As a result, monetary policy is an area most simply paid little attention to and hence now find themselves knowing little about.

Yet the numbers involved in monetary policy completely dwarf those in the fiscal areas politicians are comfortable debating. Simply look at the number of zeros on the numbers when a bit of extra infrastructure investment or a tax rate here or there is debated compared to when the Bank of England makes QE announcements. It is a matter of a few billions playing tens of billions, and the tens of billions are the neglected ones.

Slimmed down, diluted and late, the Mid-Term Review will eventually limp into the limelight next year. Forget its original intentions; its importance now is the small clutch of major new policies for the second half of this Parliament that it will contain.

Most notable looks to be an agreement on social care, implementing the Dilnot Commission’s findings. When he was a health minister, Paul Burstow was a fierce advocate for creating and then implementing its recommendations. Other Liberal Democrats in government have since continued that battle.

Newsnight:

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