Hammond promises end of austerity – if Brexit deal is done
This was the most upbeat Budget since 2007. The era of austerity – which began with the crash of 2008 – was coming to an end, proclaimed the Chancellor at the start of one of the longest Budget statements in years. The optimistic tone was grounded in the much-improved public finance forecasts published today by the Office for Budget Responsibility (OBR). They gave the Chancellor a £20bn forecast improvement and he spent every penny. He announced increases in public spending from next year, addressing a range of important immediate problems from Universal Credit to potholes, and pointed to future tax cuts and wage increases. Yet behind the optimism was a warning that all this would be threatened by a ‘no deal’ Brexit.
Unusually for Philip Hammond, it was a highly political Budget speech. He made some effective attacks on Labour for economic irresponsibility. It was also a Tory backbench crowd-pleaser with new proposals for saving the high street and more money for social care, as well as some significant sweeteners aimed at the DUP.
The political message was hard-edged. Public spending will rise by 1.2% in real terms in next year’s departmental reviews but there could be more money available if a deal is agreed with the EU. Conversely, if parliament fails to agree a deal, a ‘full fiscal event’ – also known as an emergency Budget – could be necessary. This was underlined by the OBR which warned that all of its forecasts published today assume “a relatively smooth exit from the EU next year”. The report went on to warn that “a disorderly one could have severe short-term implications for the economy, the exchange rate, asset prices and the public finances. The scale would be very hard to predict, given the lack of precedent.”
In a much anticipated move, the Chancellor announced a new digital services tax aimed at Facebook, Google and Amazon in particular. From April 2020, companies with global sales of more than £500 million will be subject to the new tax. However at just 2% of revenues, it is only forecast to raise £400 million in its first year.
He also announced the end of PFI. Introduced under John Major, it was significantly increased in scale by the Blair and Brown governments. However, he said he remained committed to partnership with the private sector to deliver infrastructure and would establish a new centre of excellence to manage existing deals.
In response to growing concern about the plight of the high street, he announced that business rates would be cut by a third for companies occupying premises with a rateable value of £51,000 or less. This is expected to benefit 90% of independent companies.
The Chancellor also announced a £30 billion infrastructure package for major roads, with money allocated for local councils to tackle potholes and bridge repair.
Mindful of the focus on environmental concerns, Hammond announced a levy on all plastic packaging that does not include at least 30% recycled material, but despite significant pressure from NGOs he decided not to introduce a so-called “latte levy” that would have imposed a charge for each single use coffee cup.
In his response to the Chancellor’s statement, the Labour leader Jeremy Corbyn said the Budget represented a broken promise – challenging that “What we’ve heard today are half measures and quick fixes while austerity grinds on”.
Although the speech was long and unstructured in parts, first impressions are that it did what Philip Hammond needed it to do. He delivered some good news for his party, sorted out some short-term fixes and made down payments for the future in particular on the NHS. In economic and public expenditure terms, he was laying the foundations for the Tories’ 2022 general election platform. But everything rests on Brexit.
By Lexington’s Partner Mike Craven
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