A confident Chancellor delivers a cautious Budget
Philip Hammond began his budget speech with a joke about the fate of Norman Lamont, the last Chancellor to deliver a ‘last’ spring budget, who was sacked just 10 weeks later. It was a joke he wouldn’t have made if his own position was in any doubt.
Hammond is, after Theresa May, the most powerful and authoritative member of the Government. That was evident in his relaxed delivery of a confident, if largely dull, Budget.
But it was not without some controversy. Tax rises for the self-employed, who will see National Insurance contributions rise by 2% over the next two years, and the tax free dividend allowances cut from £5k to £2k, have already sparked a row.
Those moves were made necessary by a steady erosion of the tax base resulting from a significant rise in self-employment – with a £6bn shortfall forecast by 2020/21. But the changes are likely to arouse opposition from critics who have been quick to point out that the rise in NIC appears to break a 2015 manifesto pledge.
With a slender majority in the Commons – and Labour’s John McDonnell committing to oppose the measure – this could yet prove tricky to pass; and may make the Chancellor reluctant to pursue further tax rises in the future.
Movement on social care
The Budget also sought to address rising concerns about the provision of social care, with a green paper in the pipeline and £2bn funding committed over the next three years, and about the crisis in NHS hospitals, which he pledged to address through £100m for on-site GP triage and £325 to support strong sustainability and transformation plans (STPs).
Although the Chancellor agreed to new school funding, another key issue for Tory backbenchers, this will be entirely for new free schools and will not deal with rising complaints about reductions in per pupil funding. This too could be controversial with government backbenchers as it is bound up with wider arguments about grammar schools. The Chancellor also confirmed pre-briefed measures about new moves to promoted vocational learning through the introduction of T-levels.
Hammond was keen to stress that he had been ‘listening to business’ and reiterated the commitment to reduce corporation tax to 17% by 2020. While he announced there were to be no further increases in alcohol or tobacco duties on top of those previously announced, he nonetheless stuck with plans to allow wine, spirit and beer duty to rise by inflation – the first rise in five years.
Business rates have attracted significant attention in recent weeks and, in the wake of complaints about the impact of the recent revaluation, Hammond announced more help for companies just above the small rate relief threshold; a discount for 90% of pubs in England; and a £300m discretionary relief fund to be administered by local authorities.
Although he announced a further review of the business rates system, saying that in the medium term there needs to be a ‘better way’ to tax digital businesses, it has for the moment been kicked into the long grass.
Brexit: The bigger picture?
However, in terms of the bigger picture those on the governing benches will have been heartened by the macro-economic figures. The OBR prediction for short term growth is up significantly, from 1.4% to 2% in 2017/18, and Hammond forecast £26bn ‘headroom’ against his current fiscal target.
Yet while the Chancellor boasted that the economy had confounded the commentators, he was at pains to say that the government intends to remain on its current course. There was no splurge in spending and no major upheaval to taxation. It was steady as she goes.
That reflects underlying concerns about the dog that did not bark in this Budget: Brexit.
Despite the positive short term forecasts there remains unease that the UK economy could yet find itself in more turbulent conditions as the process of withdrawal from the EU unfolds. The waters are calm today but the Chancellor knows that a storm may be brewing.