Philip Hammond, Chancellor of the Exchequer, has surprised many with an upbeat budget full of giveaways, fanfare for the ‘end of austerity’ and a gamble on spending many billions. On the austerity point, it would be more accurate to say it is being eased, rather than ended; Mr Hammond hasn’t departed from his mantra on fiscal discipline.
The giveaways and pledges for future investment in public services (most notably the NHS with an extra £20.5 billion over the next five years) are coming from a ‘windfall’ via upgraded growth forecasts and a better-than-expected performance on the deficit. The Office for Budget Responsibility has helpfully upgraded its GDP growth forecast for next year to 1.6% up from 1.3%, followed by 1.4% in 2020/21, 1.5% in 2022 and 1.6% in 2023.
Owing to this “resilient growth”, Spreadsheet Phil is relaxing his grip on the purse strings by some £103 billion over the next six-year period. The change in tone is significant because deficit reduction no longer appears to be the paramount objective of the Chancellor. His tonal shift is a big departure from all Budgets since 2010. With Brexit still looming large over everything government does, this budget of giveaways is obviously intended to take the edge off as we enter a difficult period of uncertainty.
And as some commentators have remarked, this looks a little bit like a pre-election budget. But the Chancellor is keen to stress this Budget is actually about recognising the hard work of the British people during this eight-year austerity period (they say that during both good times and bad). Essentially, he wants to be seen to be giving something back.
Unsurprisingly, fuel duty is frozen for the ninth consecutive year, with the average car driver set to save £1,000 by 2020 and van drivers around £2,500. This will no doubt be welcome to many. As will the accelerated delivery of the Tory pledge to cut income tax by raising the threshold for paying the basic tax rate, as well as the higher 40p rate, at £12,500 and £50,000 respectively. It was widely anticipated Hammond might ditch this pledge, yet he’s pulled it off. The Chancellor has taken to the airwaves to celebrate this as a triumph for average and middle earners – amounting to a tax cut for 32 million people. Likewise, Hammond’s emphasis on working people echoes with him raising the national living wage by 4.9% to £8.21 an hour.
First-time buyers are also on the Chancellor’s radar with his announcement of an exemption from stamp duty on shared equity purchases. This is valued up to £500,000, an increase from the previous £300,000 rate with this stamp duty relief being retrospective since the last Budget. Also, Hammond has announced an increase of £500 million to the housing infrastructure fund, now totalling at £5.5 billion with the aim of delivering 650,000 new homes to tackle the ongoing housing crisis.
These elements of budgetary largesse look like repair work from the Conservatives with ordinary working people. Naturally, the opposition parties are slamming this budget as cynical, failing and heartless. Labour has ridiculed the Budget as one of “broken promises” and callous to those on benefits and the most vulnerable in society. John McDonnell, the Shadow Chancellor, has lambasted the ‘unfair tax system’ not paying its way for public services (both big business and high earners), as well as a perceived lack of long-term government investment in growth. Likewise, he has scorned a relative lack of significant announcements on investment in education. But it should be noted the Chancellor announced a package of £695 million to help apprenticeships, including changes to the amount smaller firms are required to contribute to taking on apprentices, cut from 10% to 5%.
In summary, this was a good Budget for Hammond. He’s rustled up some friendly giveaways to recognise the impact of austerity. None of this has altered Labour’s stern message that the Government is heartless and that it favours what it sees as the ‘few’, not ‘the many’. We’ve said above that Brexit looms heavy; and, yes it certainly does. Depending on what happens with the Brexit deal, this Budget runs the risk of being a distant memory if the Chancellor needs to deliver a new one in Spring 2019.