Budget 2018: Key points and snap verdict

Phillip Hammond has announced his budget and while it does not end austerity the chancellor has pledged to increase spending, however little this increase may actually be. In his opening remarks, he emphasised the need for an efficient government which keeps taxes low.

The key feature of the Chancellor’s speech is what was missing. The Chancellor did not detail where the extra money for any of his promises would come from. The Chancellor also announced he will not close the deficit by the middle of the next parliament. In the leader of the oppositions rebuttal, Jeremy Corbyn stated the government had only succeeded in moving the deficit around and that NHS trusts and local councils now bear the debt burden, alongside private citizens, as we reported last month reducing government spending is fuelling household debt.

The Chancellor has been given a £11.6bn windfall as public finances are stronger than expected and “Borrowing has come in lower than we expected.” Despite this, the Chancellor will yet again miss his targets on the deficit.

This is not enough to end austerity, but Hammond stated that it is “coming to an end” in direct contradiction to the PM’s conference address.

The IFS says the government needs £19bn to end austerity and this would be the bare minimum to keep unprotected day-to-day departmental spending constant in real terms. However, estimates from the Resolution Foundation put this at £23-£30bn depending on the definition.

Labour appealed to other parties to vote down the budget if Universal Credit wasn’t halted and Jeremy Corbyn labelled the budget a “broken promise while austerity grinds on”

The rundown of the key features of Hammond’s speech and key new policies

Fiscal Forecast

The Chancellor gave the government’s predictions on how the economy will grow and how public finances will manage.

GDP Growth

Looking ahead growth for 2019 has been downgraded 0.5% from an initial estimate of 2.1% to 1.6%, according to Jeremy Corbyn in his statement to the house, and the outlook for 2020 looks grim at best, predictions stand at 1.4%. These predictions are up when compared to the spring statement but as can be seen below are historically very low. Economic growth in the first half of this year was the slowest since 2011 and this reflects the forecasts. The IFS also pointed out wages will be no higher in 2022 than they were in 2007 describing the poor growth in living standards for working Brits as “completely unprecedented”

Deficit

The overall effect of the Budget measures is to increase the deficit by £1.1 billion this year and £10.9 billion next year, rising to £23.2 billion in 2023-24.

 

More for the NHS- including an additional £2bn for Mental Health

A major part of the budget will be to confirm there will be a £20 billion spending increase by 2023/24 for the NHS, as promised by the PM in June. While this was previously thought to rely on a so-called ‘Brexit Dividend’, meaning a Good Deal from the negotiations, Matt Hancock, Secretary of State for Health and Social Care has since claimed that there will be the funding increase “irrespective of the deal we get on Brexit”

As part of the extra funding for the Health Service, there will be a £2 billion increase in funding for Mental Health Services. With criticisms over the provisions of mental health treatment across Britain, and Mental Health units such as Cheshire East’s Millbrook Unit set to close, the government are looking to tackle what is being called an ‘epidemic’.

1 in 4 people in the UK are now reported to experience a mental health problem each year, and its believed that this could be on the rise. Included in the funding increase will be ‘specialist mental health ambulance services’, more community centres such as ‘crisis café’s’ to help those in need, and proper support in A&E departments.

However, the IPPR think-tank warned the sum was just half of what will be needed to ensure every mental health sufferer gets the care they need.

Shadow mental health minister Barbara Keeley said:

“If this announcement is simply money that’s already been promised, it will do little to relieve the severe pressures on mental health services that have built up because of this Tory Government’s relentless underfunding of the NHS. People with mental health conditions cannot afford to wait five years for meaningful action from this Government.”

Social Care will also receive a funding increase of £650 million next year. This aims to ease the national crisis surrounding the issue. Tory cuts have taken £7bn from social care so the policy is a slight walk back on cuts.

The Chancellor did not detail where this new money will come from.

Tax cuts

Personal Tax allowance will increase by £650 to £12,500 in April 2019 meaning fewer low-income earners will be paying tax. The higher rate threshold will also be increased so that some high earners will now be in the lower tax bracket. This will rise from £46,350 to £50,000 in April.

Increased Transition funding for Universal Credit

With Tensions mounting over the rollout of the government’s flagship welfare policy, it is believed that the chancellor will announce further increases in spending for the programme. With many families reportedly being left “up to £200” a month worse off, Labour have called for the policy to be stopped urging MPs to vote down the budget if it isn’t. However, with the fear of their policy being seen as a complete failure, the government are set to pump more transition money into the system.

The government will pump £1bn into Universal Credit’s transition period over 5 years and £1.7bn into payments to help solve the problems with the benefit.

Housing

The Chancellor has announced that the cap on the amount councils can borrow for house building will be scrapped tomorrow. Public Finance has claimed that a council housing boom could generate an extra £320 Billion for the economy in the next 50 years.

Labour has committed to building 100,000 council and housing association homes a year and building 1 million new homes. The government’s policy is supported by Labour but not expected to make a huge difference

House-building has fallen to its lowest level since the 1920’s, and according to Labour there are almost 200,000 fewer home-owners since the Tory government came into power and new, affordable house-building is at a 24-year low. To solve this the Chancellor will put a further £500m into the Housing Infrastructure Fund, to build 650,000 homes.

This is the first commitment by the Tories on house-building and whilst the promise is lower than Labour’s and makes no commitment on the numbers of affordable houses it remains a dramatic improvement on government housing policy.

‘No interest’ loans for families in debt

Banks and debt charities will get £2 million to help them design no-cost repayment plans for “life’s unexpected costs”.

The measure is designed to help Britain’s household debt crisis but is unlikely to make any real difference.

Shadow Chancellor John McDonnell added:

“This is farcical from a Government that has overseen the expansion of high-cost problem credit on an industrial scale. And whose flagship social security policy, Universal Credit, is driving low-income households into debt.”

Defence Boost

The Chancellor Philip Hammond pledged an extra £1 billion for the Ministry of Defence in order to plug capability gaps and prevent further cuts.

The Defence Secretary Gavin Williamson has been campaigning for an increase in spending since taking office last year. In June 2018, it was reported that he had asked the Prime Minister Theresa May for an extra £4 billion a year.

Despite the increase, a long-term solution to the £20bn black hole has been delayed by at least 6 months until the 2019 spending review.

Today’s boost will prevent further cuts to equipment. At the Tory Party Conference last month, it was announced that the amphibious assault ships HMS Albion and Bulwark (right) would be saved from cuts. Many anticipated their saving to come at a cost: the early retirement of a few Type 23 frigates. The extra £1bn should prevent this.

UK’s Digital Service Tax

The Chancellor has announced that there will be new taxation in the form of a ‘Digital Sales Tax’ from April 2020 aimed at large Technological companies. The taxation will only apply to companies that have global revenue sales of over £500 Million and are profitable.

Digital tech giants will be taxed 2% on the money they make from UK users. The tax is estimated to raise just £400 million a year.

There are several loopholes that will likely be exploited, firstly, the tax will be introduced in two years, giving legal experts the time and opportunity to find a way out of this tax. Secondly, as it will only apply to profitable companies, large companies will likely set up a shell company in a tax haven and run all its profits through there. This policy would have been a step in the right direction, but it simply proves that the Conservative party is still on the side of big business.

Snap verdict by Iwan Doherty – Editor in Chief

The budget does not go far enough economically and is a desperate attempt to win over moderates with Labour-lite policies. More house building, raising the minimum wage and raising personal allowance are good policies but they don’t fit in with the current Tory vision and alongside drastic cuts and downgraded growth forecasts, they are unlikely to solve the numerous problems facing British society.

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The People's News Managment

The People's News Managment

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