Opinion
Richard Cree 29 Oct 2018 07:34pm

Fiscal Phil's big giveaway

It was billed in advance as a giveaway budget to mark the end of austerity. We had known that much for weeks, because the prime minister had announced it at the Conservative Party conference, having previously announced a £20bn boost in spending for the NHS and also let slip plans to maintain the freeze on fuel duty. If the chancellor, better known as a fiscal hawk than a big spender, was miffed at having these headlines from his Budget pre-announced so early and so publicly, he didn’t show it.

Budgets are always political, but this one was as much about political numbers as financial ones. If there is to be a snap election any time soon, Hammond will be able to point to this speech as proof he did his bit for the campaign before it started. Announcing the end of austerity potentially opens the government up to claims by the opposition and others that they are doing so “because it has failed”. While others still will question whether the cuts of austerity were worth it if the project is to be ended early, before the deficit is fully eliminated.

Read all the news, analysis, and comment on this year's Budget here

But Hammond, in a long speech that swerved between his usual blend of suave self-deprecation and knowingly crap jokes (in one case literally, as he did an entire routine of painfully bad toilet-based puns to announce a change in rate relief for council toilets), anticipated these lines of attack and had some robust counter punches ready. He was able to simultaneously defend his continuation of George Osborne’s austerity measures, while rewarding “the hard work of the British people” (a phrase he returned to over and over) by ending it early and turning the taps back on.

The extent to which this Budget marks a genuine shift in government spending and how much it marks a change in the political rhetoric surrounding that spending, will to some extent only be answered by next year’s Comprehensive Spending Review (CSR). At the very least the 2019 round is unlikely to be quite as fraught and fractious as those in 2010 and 2015. But Hammond was in generous enough mood, thanks to significantly better than hoped financial forecasts from the OBR, to splash significant cash (according to one estimate there was a net giveaway of £5bn). Alongside huge injections for the NHS, there were billions in extra funding for Universal Credit and a surprise bringing forward by a year of the previous manifesto commitment to raising the personal allowance to £12,500 and the higher rate band to £50,000.

But for business leaders the biggest uncertainty remains the outcome of Brexit negotiations and Hammond recognised this in a number of ways. He highlighted the degree to which there could be what he called a “double deal dividend”, with business investment booming in the aftermath of any deal (almost regardless of what that deal is), while he held out the possibility of turning the planned Spring Statement into a full fiscal event (in other words an emergency Budget) if things don’t go so well.

There were also welcome announcements on the Annual Investment Allowance (AIA), which is up to £1m for two years (although the temporary nature of the increase has upset some experts), and on business rates relief for small businesses, part of a wider package of measures to try and reinvigorate the UK’s high streets. Hammond also announced plans to take on the perceived lack of tax paid by the largest tech firms in the UK – this time with a jibe at the expense of new Facebook employee and former deputy PM Nick Clegg – with the announcement of a UK-only Digital Services Tax, from 2020 onwards unless a global deal of a similar scheme is arrived at before that.

This Budget potentially marks a sea change in British politics, as Hammond himself admitted. Where the ground previously contested between Labour and the Conservatives, was once spending versus austerity, the language and era of austerity is now officially dead. The new political frontline will be between spending responsibly and spending recklessly. The question for voters, whenever the next election does arrive, is whether they believe that the self-proclaimed “fiscal Phil” (as an aside, can some at the Treasury remind Hammond just what type of wrong it is to refer to yourself by a self-given nickname?) and his party are able to lead them to the bright sunny uplands promised. Or whether this was, as Corbyn suggested (in a pretty weak response largely shouted down throughout) “a broken-promise Budget”.

Richard Cree is editor-in-chief of economia


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