Did anyone else get a sense of déjà vu during chancellor Philip Hammond’s Autumn Budget speech?
If so, it’s probably because the Tory party conference a few weeks ago acted as a bit of a spoiler-fest for the chancellor’s fiscal vision for the next 12 (or, quite possibly, 6) months. “The end of austerity” (whatever that means), more money for the NHS, a digital tax, a fuel duty freeze and a Brexit bonus for the nation’s back pockets were all promised and signed off before Mr. Hammond had chance to put pen to paper.
What’s more, Halloween spirits must have been interfering with my crystal ball, as the two headline announcements I predicted last week failed to materialise. An unwillingness to rock the economic boat in advance of potential Brexit chaos could be a part of it, but another factor could be the relative restrictions that seem to have been placed on Mr Hammond compared with his predecessor George Osborne. ‘Spreadsheet Phil’ has repeatedly blamed a complex and shifting economic (and political) landscape for his apparent powerlessness to effect much change, an argument that just about worked for the last two budgets he presided over.
However, against a backdrop of unexpected good news from the Office for Budget Responsibility, who revealed that the public finances were in a much better state than previous estimates indicated (to the tune of £12bn), and amid pressure to take on board innovative new policy proposals from a prominent think tank, the idea that ‘it’s the economy’s fault’ that Mr Hammond can’t fully implement his fiscal wish list is starting to wear thin. Could it be the case that the main factor beyond the chancellor’s control is an overbearing boss who doesn’t like to delegate? It’s either that, or the chancellor genuinely believes that short-term tinkering is all that’s required to keep the economy on track…
The big surprise: income tax relief for the ‘squeezed middle’
Maybe the above isn’t a fair assessment. Mr Hammond wasn’t sent into the House of Commons empty-handed. The only thing I vaguely got right in my pre-budget speculation blog was the daft pun I made about whether or not the Budget would be ‘a taxes chainsaw massacre’. The chancellor did indeed slash taxes on earnings, by raising the income tax personal allowance from £11,850 to £12,500, starting April 2019. Normally the personal allowance increases with inflation, whereas this proposal represents a 5.5% boost to the tax-free band. Presumably this is the ‘Brexit dividend’ we’ve all been told to expect (either that or the chancellor has very dismal expectations indeed for the outlook for inflation post-Brexit…).
The upshot is that basic-rate taxpayers will be better off an extra £155 a year, and higher-rate taxpayers will find themselves around £566 better off – with one caveat. Higher-rate taxpayers earning over £100K will see less of a benefit, as the this is the threshold at which personal allowance tapering kicks in. Every pound earned over £100,000 per annum means a loss of £1 of personal allowance, generating an effective ‘hidden’ 60% tax band between £100,000 & £123,700 (currently), as more income = more money falling simultaneously into the 20% and the 40% bands.
This outcome fits neatly with the idea that Monday’s budget was aimed at ‘the strivers, grafters and carers’ in society, by limiting rewards to the ultra-high earners and providing a healthy boost to those in the middle. That said, given the median annual salary for a full-time worker in the UK is around £29.5K – what counts as ‘the middle’ has to be somewhat stretched for this argument to hold water.
How did the papers react?
For the key announcements presented in a good light, look no further than the government website’s post: The Budget 2018: 24 things you need to know.
For a more critical overview of the key announcements, below is a summary of the media’s take on the final Budget to take place before we leave the EU:
- The Times registered its disappointment with the government’s plans to abandon its deficit-eliminating targets so close to the finish line, writing that “Yesterday’s budget made it clear that Fiscal Phil has ditched his “fiscal objective” of eliminating the deficit, as the NHS and ending austerity take priority. Might there be more fiscal indiscipline ahead?”
- The Guardian lamented how, in combination with Universal Credit failures, the tax cuts have done little to help those struggling the most in society, during a time where “public spending as a share of national income [has returned to] to its level 15 years ago, while government tax receipts as a share of GDP were last higher in the mid-1980s.”
- The Telegraph concluded that the budget’s somewhat feeble agenda was a result of Brexit uncertainty, with the possibility left open for “another full-blown Budget in markedly different political and economic circumstances” should we crash out of the EU next March.
- The Independent urged caution over optimism at the chancellor’s celebration of better-than-expected Treasury stats, pointing out that good performance can be as much down to luck as competent management of the public purse. They highlighted that “there have been bigger windfalls handed to chancellors since the OBR was established. Moreover, the OBR stressed that this is all merely a provisional estimate, which could rapidly be reversed at future Budgets, especially if Brexit is chaotic.”
- The Sun gave a general overview of the winners and losers, but did judiciously point out that, “despite promises by the Chancellor to deliver a budget for hard-working families, there were hardly any mentions of measures to help this group. There was no mention, for example, of extra help towards childcare costs even though it has been widely reported that working parents are struggling as nursery fees rise three times faster than wages.”
- The Mirror’s Kevin Maguire was deeply unimpressed, with the quip that Mr. Hammond had “[put] the con in Conservative”, declaring the claim that austerity is ending to be false. In particular, he took issue with the comment that a boost to education funding would provide “little extras for schools”, at a time where schools are apparently so cash-strapped that some have been asking for donations from parents to fund “teachers, classroom assistants, books, pens and toilet rolls.”
As ever, we’ll be releasing our Budget 2018 guide this time next week containing a full overview of the key changes and how they will affect you in downloadable PDF format. Until then, our verdict is that, until we’re out of Brexit limbo, ambitious policymaking looks to have been put on the backburner. Hopefully, said state of limbo will come to an end in March 2019, and the government will finally be able to get on with the task of running the country…