Chancellor Philip Hammond's third Budget speech has offered a peak into a brighter future with the prospect of lower taxes and more public spending. Claiming that austerity was “finally coming to an end”, Hammond's 70-minute speech agreed to a series of new spending increases, also implying that if Brexit goes wrong the pain felt across the public sector will continue. Autumn Budget 2018 seems more or less like a gimmick, a give-away gamble with all the talks of money that makes it seem like the Theresay May-led government just wants to bribe people and claim hostility is over.
As negotiations with the EU27 enters its final weeks, Hammond chose to spend all of a £68 billion windfall handed to him over the next five years by the independent Office for Budget Responsibility (OBR). He said, “Austerity is coming to an end, but discipline will remain. That is the clear dividing line in British politics today.” He also made a desperate attempt to repeatedly stress that Britain is at “a turning point in our nation's recovery.” He announced a string of short-term giveaways on everything within an arm's distance, from defence spending to potholes. Refraining from tax measures, such as a raid on pensions, that risked falling foul of the government's lack of a secure majority.
Upgraded forecasts for government borrowing and growth gave enough space to the chancellor to lift public spending, including extra funds for the NHS. Hammond also brought forward increases to income tax thresholds, while announcing a reduction in public debt as a proportion of national income.
It is a supposedly good budget for taxpayers as he announced to push on with raising the basic tax rate threshold, despite calls for him to abandon the Tory manifesto commitment. The basic rate was raised to £11,850 in April, which will be booked in £12,500. Parallely, the higher rate will go up from £46,350 to £50,000. There is however, bad news for pension savers as this will result in previously higher-rate taxpayers slipping into the basic rate tax bracket. Consequentially, the tax relief they receive when putting money into a pension will be halved from 40 per cent to 20 per cent. While Hammond has strainfully highlighted that this is solely done for people on the bottom layer of the financial pyramid, a hidden secret is that high-income earners will earn more money with tax cuts.
He announced the largest-ever roads investment package, confirming just under £30 billion would be used to upgrade the UK's roads. Alongside building new roads, the money will be used to fix and upgrade existing routes. The government will also set aside £million for the creation of “future mobility zones”, within which new transport modes, services, and digital payments and ticketing will be trialed. The irony is that it is this severe austerity since 2010 that has not only created potholes but also damaged family budget.
Meanwhile, the chancellor hopes to boost productivity by rolling out a full fibre broadband nationwide. In a speech that made little reference to the potential economic risks of a no-deal Brexit, he said that with a full departmental spending review due next year, Whitehall departments could expect their budgets to increase on average by 1.2 per cent a year in real terms over the five years of the spending review period. “That is not the limit of my ambition. When our EU negotiations deliver a deal, as I am confident they will, I expect that the 'deal dividend' will allow us to provide further funding for the spending review. The hard work of the British people is paying off,” Hammond said.
Hit in the face by Hammond's budget are major US tech companies like Amazon, Apple, Facebook, and Netflix. They face a new digital services tax by 2020 in a move the chancellor calls necessary to address concerns about the “fairness of the tax system”. The new measure is expected to raise over £400 million annually for the exchequer, and makes Britain the first major economy to implement a “tech tax”. This move will clearly backfire as considering the current state of talks between the EU and Britain, the country needs employment and foreign investment the most. Also, online grocery shops started by British Asians that home deliver Asian ethnic foods like spices and vegetables will most likely suffer heavy taxation, eventually resulting in inflationary prices for consumers.
In a bid to reverse the growing trend of e-commerce, the chancellor announced that just under half a million small retailers will be subject to business rates relief. If implemented diligently, this could be one of the best decisions made by the May government. The Tory party has for long ignored the roles played by independent shops. These retailers pay great services to people, especially those from the lower strata. Independent shops are a useful element of the society. However, the plans have not gone down well as experts have called plans to reform business rates for small retailers as “nonsense” and “wildly misleading”. The measure, which will also apply to pubs, cafés and restaurants, will operate on top of an existing small business relief scheme and cost £940 million over the two years it will operate.
Hammond tight-lipped on NHS funds
The chancellor has not confirmed whether community pharmacy will receive a share of the £20 billion yearly boost to NHS England's funding. Back in June, May had announced that the budget for NHS England will increase by £20.5 billion a year for the next five years. When asked by C+D whether community pharmacy will be allocated some of this money, the Department of Health and Social Care had said at the time, “We will need to await the autumn statement for further details.” However, in the Autumn Budget, Hammond did not divulge full details of how the money would be spent across the NHS, promising this would be set out in an NHS 10-year plan to be published “shortly”.
The “number one priority” of the British people is the NHS, so money for the health service should be spent on the “frontline and for the improvement of services”, the chancellor said. A “sneak preview” of the plan was revealed as part of his budget announcement and Hammond said the government will invest £2 billion into mental health services, including a new mental health crisis centre, providing support in every A&E unit in the country and a 24 hour mental health crisis hotline.
Sadiq Khan's reaction to the budget
On October 3, Khan wrote to Hammond setting out priorities and policies he believed Londoners needed to hear from him in the Budget. He mentioned London's latest devolution deal that was signed last year. He wrote about the housing crisis, youth services, business rates, air quality, and most importantly policing. However, to say he was underwhelmed by the budget produced, would be an understatement. “This budget was billed by Theresa May as the “end of austerity” but that couldn't be further from the truth. The budget confirms that the government is pressing ahead with the huge cuts that have caused so much damage to London at the same time as we face a catastrophic threat to jobs and growth from either a bad or no-deal Brexit. Neither is there any investment in youth services to create more opportunities for the next generation. As a result, with so little in budget on the scourge of violent crime, it’s hard not to conclude that the Government is abdicating its responsibility to keep the public safe.”
Khan also said the budget was “another missed opportunity to give London the powers and funding we desperately need to tackle the challenges ahead and properly prepare for the damaging reality of the Government’s bad Brexit.”
Meanwhile, Gareth Bacon AM, Chairman of the London Assembly Budget and Performance Committee, lashed out at Khan, saying, “It was a surprise to see how muted the Mayor’s requests were and we believe they could have been more robust for Londoners. We were unsurprised however, to read the admission that TfL alone cannot finance the rest of Crossrail and needs government money. The loan announced on Friday does not go far enough to cover the funding gap and in any case needs to be repaid, so a significant pot of funding is sorely needed. The long list of financial demands from the Mayor does not change the fact that Transport for London has mismanaged the crucial Crossrail project, which is still an open wound.”
Bacon added, “Perhaps if the Mayor was more realistic in his list of demands then central government would be more forthcoming.”