Behind the Chancellor’s October Budget
It’s been a couple of weeks now since Philip Hammond’s October Budget divided the parties – and the country – so resoundingly in their opinions of his budget and its impact. Now that the dust has had time to settle slightly, what exactly are we, as a nation, looking at from that Budget?
Well firstly, let’s be clear. A ‘no deal’ Brexit means we can forget all about this Budget, as it will effectively be torn up and replaced with an entirely new budget in the Spring of 2019 (or perhaps even sooner to calm nerves if indeed it is to be a ‘no deal’?). However in the meantime, the Chancellor’s key points stand as follows.
Brexit (see note above):-
- An additional £500m for Brexit preparations in government departments.
- The Government now forecasts growth of just 1.3% for 2018.
- Then 1.6% in 2019, 1.4% in 2020, 1.4% in 2021, and 1.5% in 2022 and 1.6% in 2023.
- In March, growth was forecast at 1.3% for 2019, 1.3% for 2020, 1.4% in 2021, and 1.5% in 2022.
- However, let’s be clear. These figures assume some sort of beneficial Brexit deal – which is by no means a sure thing.
- Forecast for borrowing to be £11.6bn lower in 2018-19 than forecast at the spring statement. That is equivalent to 1.2% of GDP.
- Borrowing forecast to be £31.8bn in 2019-20, then falling to £26.7bn in 2020-21, £23.8bn in 2021-22, £20.8bn in 2022-23 and £19.8bn in 2023-24.
- The Chancellor states that the Government will meet its fiscal targets three years early, and will see borrowing as a percentage of GDP fall to 1.3% in 2021.
There’s a lot of statistics to this section, and during the budget itself there was a lot of cheering from his Tory colleagues for the Chancellor as he called the falling debt “a turning point in our nation’s great recovery”. However, I again feel the need to sound a cautionary note: a ‘no deal’ Brexit – or even one that’s widely perceived to be a ‘bad’ deal – will completely wipe out the statistics lauded during this section of the Budget.
- Debt is forecast to be 83.7% as a share of GDP in 2018-2019.
- As a share of GDP, debt peaked at 85.2%.
- Debt as a share of GDP is forecast to fall to 82.8% in 2019-20, 79.7% in 2020-21, 75.7% in 2021-22, 75.0% in 2022-23, and 74.1% in 2023-24.
- An additional £1bn for the defence budget for the remainder of this year and next, to boost cyber capabilities and anti-submarine warfare.
- The Treasury will donate £10m to the Armed Forces Covenant Fund Trust to support veterans on the centenary of the World War 1 Armistice.
- £400m extra for schools in this financial year. (NB. this will average £10,000 per primary school and £50,000 per secondary school, and has been widely criticised as ‘hopelessly insubstantial’ by most schools and teachers).
- The contribution to the apprenticeship levy for smaller firms is halved from 10% to 5% in a £695m package to support apprenticeships.
- The minimum qualifying period for entrepreneur’s relief is doubled from 12 months to 2 years.
- The government will now introduce a UK digital services tax. Hammond says it will be expected to raise around £400m per year. (NB. Critics argue that the likes of Amazon and Google will still be getting off lightly and hardly paying their fair share of tax under the new rules).
- Digital tech giants will be taxed 2% on the money they make from UK users.
- The chancellor said the tax will be “narrowly targeted” on UK generated revenues of specific firms, rather than UK tech start-ups.
- The government will provide £675m to create a “future high streets fund” that councils can access to redevelop their high streets.
- For the next two years, up to a business rates valuation, for all companies with rateable value of £51,000 or less the government will cut their business rates bill by one third. A saving for 90% of shops, restaurants and cafes.
- There will also be mandatory business rates relief for public lavatories.
- The government will provide a further £500m for its housing infrastructure fund, which will unlock 650,000 homes. The fund now stands at £5.5bn.
- The government will impose a new tax on the manufacture and import of plastic packaging that contains less than 30% of recycled plastic. Hammond says he will consult on the detail and timetable.
- However, there will be no special levy on disposable plastic cups, an announcement that caused widespread shock and disappointment amongst the green lobby.
- £1bn of funding for an additional package of measures to aid the transition over five years. (NB. Universal Credit still comes in for harsh criticism, and a close look at the figures soon shows that in fact the additional £1bn of funding may not be sufficient. Critics also argue that it is now more expensive than the scheme it was designed to replace).
- The government will also increase the work allowance to £1,000 a year under universal credit, at a cost to the Treasury of £1.7bn a year.
- The government will meet its manifesto commitment to raise the personal allowance to £12,500 (currently £11,850) and the higher rate taxpayers’ threshold to £50,000 (currently £46,351) one year earlier than planned: April 2019.
- The chancellor says this is because the OBR estimates for the public finances are better than expected.
- The minimum wage will also rise by 4.9% from £7.83 to £8.21.
Overall, this budget is an odd thing to look at – knowing that it could be scrapped and declared null and void any second does, of course, add to a slight sense of surrealism around any discussions of it.
There’s been widespread criticism of the Chancellor spending every penny of an unexpected summer windfall, but overall the general sensation is one of ‘wait and see’. After all, there’s no point getting stuck into supporting or hating something that may not be around in a few short months.