Anthony Browne, Mayoral Advisor for Economic Development, responds to the Chancellor's emergency budget.
Cleaning up the budget mess that the new government has inherited was never going to be painless. But in his emergency budget George Osborne, the Chancellor, has helped curb the deficit while embracing many of the principles that the Mayor has himself been advocating, and where possible putting into practice.
First and foremost, we welcome his emphasis on a private-sector led recovery, with support for growth, work and entrepreneurship – while protecting the most vulnerable. It is only through encouraging more economic activity that the economy will be put back on track, and generate the taxes that will rebalance the budget. The Mayor has long argued that the axe shouldn’t fall on capital infrastructure projects, such as Crossrail, which will underpin future growth. So it is reassuring that the Chancellor has embraced this fundamental principle both in rhetoric and deed, announcing there would be no cuts to government capital spending. Many of the publicly funded schemes in London, such as the tube upgrades, provide excellent economic returns. This spending is an investment in the future tax base.
With London being the engine of the UK economy, it is set to benefit from the measures to help businesses, and to ensure that the UK corporation tax system is internationally competitive. Cutting the corporation tax rate and small companies tax rate will provide a welcome boost to London’s entrepreneurs, and actively attract inward investment from overseas.
Just as important as setting a low rate of corporation tax is bringing back predictability to the tax system. Companies big and small have protested loudly to us that the previous government’s random, ad hoc and apparently anarchic changes to the tax system made it impossible for them to plan ahead. By setting out the main corporation tax rate for the rest of the parliament, the Chancellor is starting to provide the predictability that businesses need to thrive.
London is excluded from the scheme to give cuts in National Insurance for new businesses, which is focussed on regions of the country where entrepreneurship lags behind the capital. But we welcome any move to help regions that have become over-reliant on the public sector to become more self-reliant. As a major tax exporter to the rest of the country, London has a vested interest in promoting economic dynamism in the less economically active parts of the country.
We recognise that banks have to make a fair contribution, and should not unjustifiably benefit from the implicit guarantee that the taxpayer will underwrite their risks – a point we have made repeatedly. The proposed bank levy is comparatively modest, and we welcome the fact the Chancellor has worked hard to ensure a level playing field with other countries, which have today collectively announced similar schemes. This will reduce the risk of London being put at a competitive disadvantage to other financial services centres.
The Chancellor has made brave decisions on curbing the unsustainable growth in public spending. In London too we have been doing our part to promote efficiency, with recent announcements including folding the London Development Agency into City Hall, and a merger of our promotional agencies. By cutting costs, the Mayor has frozen his share of the council tax for two years, and hard pressed households will welcome the news that Mr Osborne has put in place measures to ensure that other councils across the country will also freeze their council tax.
Cuts to benefits are never popular, but it is clear both that the system had become completely unaffordable, and was also discouraging people from working. The decision to trim benefits will be controversial, but it is the right thing to do. The ceiling on housing benefit will affect London more than the rest of the country, but it had become a serious irritation for many hard working families in the capital that they could never afford to live in the homes that some people on benefits were living in.
Finally, we strongly welcome the measures to help the low paid and those living in poverty. It is absolutely right to raise the personal allowance to take the low paid out of income tax – if they can barely afford the essentials in life, they shouldn’t be paying money to the government. The government doesn't publish the figures, but we estimate raising the personal tax allowance by £1000 will take roughly 90,000 low earners in London out of tax altogether, so they can keep more of what they earn. It is vitally important that those on low incomes aren’t punished by high marginal rates of tax, so they can more easily improve their lot through their own efforts.
We also welcome the significant increase in child tax credit. It is an expensive move. But it is essential – both morally and politically - that the government protects the most vulnerable from the tough measures need to rescue the economy. Child poverty is a major problem in London, and it is essential that children living in low income households are protected in the years ahead. As the government has said, we are all in this together. It is a tough budget, but it must also be a fair one.