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News from City, University of London
Business & Finance Series: Expert Comment

City University London academics comment on what's inside George Osborne's red briefcase

City University London academics comment on what's inside George Osborne's red briefcase

Commenting on today's Autumn Statement, Steve Schifferes, Professor of Financial Journalism at City University London, says:

"Despite the headline giveaways, the government has actually tightened the public nullfinances.

"The headline stamp duty cuts and increase in the personal allowance have been more than compensated by increased taxes on banks and companies, leading to a net increase in government revenues of nearly £1bn.

"In the longer run, the government is dangerously dependent on its forecast that borrowing costs on government debt will continue to stay at historically low levels if it is to meet its budget deficit targets."

Commenting on the proposed changes to migration benefits, Michael Ben-Gad, Professor of Economics says:

nullDissuading people from coming here to claim benefits, though probably illegal under existing EU legislation, when implemented, will deter very few people from migrating, at least from within the EU.

This policy is seemingly a reaction to increased support for UKIP and I suspect that support is more about unease toward the threat migration poses to British identity and the changes it brings to cultural norms, than it is about economics.

Like trade, migration creates both economic winners and losers among the absorbing population. The overall effect is probably a small net benefit, but we should expect to see a much stronger shift in income from unskilled to skilled, from workers to owners of business and property. Empirically, we generally find the losses suffered by the losers smaller than this theory would suggest. Again, I think people are reluctant to express their concerns regarding culture and identity lest they be labelled bigots and xenophobes, and so gravitate towards economic arguments (no matter how tenuous) instead.

Commenting on the news that the government has earmarked Bicester as the site for a new garden city, Andy Pratt, Professor of Cultural Economy says:

"Doing this in austerity times is problematic. Garden cities are classic Keynesian nullinvestment in infrastructure and pre-investment for growth. Under contemporary administrations, this project is likely to not result in the necessary investment and there is a very real danger of just more green belt development of low quality housing, low quality of life and few jobs. In the 1920s, the development of Letchworth as a garden city, employed world leading housing designers, there was a strong environmental and self-sustainability angle and reliance on public transport - a world away from the UK today."

Commenting on the speculation that Osborne may have announcements about changes to business rates, Charles Baden-Fuller, Centenary Professor of Strategy at Cass Business School says:

"Business rates are intrinsically unfair because they are levied mainly on physical rather than digital capital and have disincentives. BUT, (and an important but), business rates have low compliance costs, (they are easy to collect) and are fairer (all firms pay them). So comparatively they are the best of a bad bunch.

"The real and key issue for the Government is to ensure online retailers pay VAT and corporation taxes - at present there is evidence that several large firms manage to evade, partially or fully, these important taxes.

"Ultimately governments need to recognise high streets are changing and that fiddling about with business rates is not as good as intervening more directly to preserve the nature of high streets."

Commenting on the current business rate system, Professor Michael Ben-Gad says:

"Generally speaking, Economists do not like the present system of business rates as theynull disincentivise development and give preferential treatment to agriculture and other industries that may use land less intensively (in terms of the value generated per square foot). A better system would place the burden of taxation on the value of the land itself, since unlike buildings the supply of the land itself is inelastic (fixed)."

Commenting on the implications to the UK housing market the changes in stamp duty announced in today's Autumn Statement might bring, Professor Michael Ben-Gad says:

null"The short-run impact is likely to be a rise in house prices, because the immediate supply of housing is inelastic and sellers will pocket most of the tax reduction.

"In the long-run, lower taxation should help spur a bit more house building and so in a few years' time, buyers may see some benefit. Of course at the very top, there will be an increase, so this is one way of undermining Labour's mansion tax argument."

Also commenting on the possible implications for the UK housing market of changes in stamp duty, Professor of Economics, Joe Pearlman says:

"I agree with Michael that the likelihood is that sellers will reap the benefits of this change in policy. The main benefit is that there will no longer be the previous distortions that there were at the threshold values.

"However, coupled with the changes that the Bank of England has imposed on commercial bank lending on mortgages, everything is still very muddied on house prices. This latest policy will indeed push prices up, but my gut feeling is that the BoE's policies will push prices down more, so that we are likely to see a reduction in house prices in the short term.

"The longer term require a greater supply of new-build, which requires either fewer planning restrictions, or else release of certain classes of greenfield sites for house-building."

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