By Ned Simons
Philip Hammond used his Budget to promise austerity was “finally coming to an end”. He grabbed attention with an increase in the income tax threshold, extra cash for Universal Credit and a new tax on tech giants.
But hidden beneath the headlines, the Chancellor made a series of other decisions you may have missed.
A win for the rich
One of the most expensive items in Hammond’s ‘giveaway’ was his tax cut package, costing a huge £2.7bn just for next year alone. To cheers from his backbenchers, he brought forward by a year a Tory manifesto pledge to raise to £50,000 the threshold at which people pay higher rate tax of 40%. Together with an increase in the personal allowance (the amount on which you pay no tax at all), the move means that in 2019 to 2020 a basic rate taxpayer will have “an average real gain of £66”.
But while in his speech Hammond trumpeted the benefit for lower earners, he was studiously silent about the much bigger bonanza his changes delivered for higher rate tax payers. Buried in the Budget ‘red book’is a line that “a higher rate taxpayer will have an average real gain of £387” – nearly six times a much as someone on low wages. Some of this will be clawed back by national insurance, but the better off will still a get net saving.
The comparative impact in 2020 and 2021 is even more stark. “A basic rate taxpayer will have an average gain of £20. A higher rate taxpayer will have an average real gain of £228,” the Treasury admits in the small print. £228 is an astonishing 11 times greater benefit. The most telling thing came when Hammond hailed all this as “a tax cut for 32 million people”. It turns out that was made up of 26.1 million on lower incomes getting a small tax break, and 4.1 million better off earners getting a much bigger payout. You could call it a tax policy for the few, not the many.
Who gains most from the Chancellor’s income tax cuts next year? The richest tenth of households are overwhelmingly the biggest winners pic.twitter.com/HpeiVxDGbG
— ResolutionFoundation (@resfoundation) October 29, 2018
The change did not go down well with all Tory MPs either – including the chair of the Commons Health Committee.
I don’t think that changes to tax thresholds should have been a priority over tackling the challenges for our police, education & reducing health inequality through public health.
— Sarah Wollaston MP (@sarahwollaston) October 29, 2018
Especially as these threshold changes a year early, not expected or even prioritised by communities more concerned about impact of prolonged squeeze on public services. This year was the only chance for Chancellor to link any tax increase to NHS pledges
— Sarah Wollaston MP (@sarahwollaston) October 29, 2018
More cash for the DUP
Theresa May relies on the Democratic Unionist Party (DUP) to deliver her a majority in the Commons. This could have influenced Hammond’s move to invest significantly in Northern Ireland today. Remember, the all-important vote on the final Brexit deal could be just weeks away.
The Chancellor has provided for:
- £320m new funding for a Northern Ireland Executive.
- £350m for Belfast City Region Deal and and negotiations will being for a Derry/ Londonderry and Strabane City Region Deal.
- £300m worth of bids will open to improve shared and integrated education.
- £2m Belfast city centre regeneration funding.
- Progress will also continue on devolving Air Passenger Duty to Northern Ireland.
Nigel Dodds, the leader of the DUP in Westminster, was understandably pleased. “Today’s announcement is further evidence of our commitment to deliver for all the people of Northern Ireland. Using our influence at Westminster we have be able to secure unprecedented levels of investment for Belfast,” he said.
Departments still face cuts
The Chancellor told MPs today that overall government spending would increase by 1.2%. But this is just a “forecast” not a pledge. And the bulk of this is taken up by the promised £20bn boost to the NHS.
The Treasury claimed that when changes to defence spending are taken into account there will be at least a flat real terms increase for non-protected departments.
But the Resolution Foundation forecasts, departments not ring-fenced will see, on average, cuts in every year from 2020-21. The economics think-tank said this means departmental per capita real-terms budgets will be 3% lower in 2023 than 2019.
Why austerity is significantly eased but not ended in one chart: big spending boost is eaten up by protected departments (mainly NHS) meaning 3% average cuts are pencilled in for the rest (think prisons nad local govt) from 2019 to 2022 pic.twitter.com/JjgYIUrPD2
— Torsten Bell (@TorstenBell) October 29, 2018
Universal Credit delayed
The government’s new benefit system has been beset by problems and increased unrest on the Tory backbenches – as well as hardening hostility from Labour. To try and soften the opposition, Hammond announced an extra £1bn over five years for the Universal Credit.
But, hidden beneath the headline figure was the admission its rollout will be delayed by nine months. A Treasury spokesman “categorically denies” the delay is designed to save cash. But the move will save the government £2bn.
The small print also reveals of the extra £1bn being invested in Universal Credit – only £35m of that sum will come in 2018/19.
Poor growth figures
Paul Johnson, the director of the highly respected Institute for Fiscal Studies (IFS) think-tank, was sharp and to the point about the Treasury assessment of the UK economy. “Employment and unemployment numbers shown here are great news,” he said. “Growth forecasts emphatically are not.”
— HM Treasury (@hmtreasury) October 29, 2018
Brexit’s potential ‘severe’ impact
Hammond’s Budget was conducted against the backdrop of intense negotiations over the UK’s final Brexit deal. With just five months to go until exit day, the possibility of no deal being agreed looms over parliament and the country.
The Office for Budget Responsibility (OBR) warns in the small print of its Budget analysis that a “disorderly” Brexit could have “severe short-term implications for the economy”. In academic speak – that is no small warning.
“The referendum vote to leave the EU appears to have weakened the economy,” it concludes.
The government’s independent economic forecaster added the scale of the hit the economy would take is “very hard to predict” given the UK has never before taken a decision similar to leaving the EU.
A ‘little extra’ for schools
Hammond announced £400m for schools to buy the “little extras they need”.
The Chancellor said this was for the “extra bit of kit that would make such a difference”.
But the money is less than the £420m given to fix potholes and repair bridges.
Meg Hillier, the Labour chair of the Commons Public Accounts Committee, was quick to condemn both the amount of money offered and the language used.
“The announcement of funding for ‘little extras’ for schools was an insult to pupils and parents. With schools living through a £3 billion reduction in funding in England – unable to afford to pay for staff, and considering short weeks and a reduced curriculum to balance the books – this is simply a kick in the teeth,” she said
The General Secretary of the Trades Union Congress was also left unimpressed.
After eight years of cuts and hardship, working people deserve better than the Chancellor’s “little extras”.
This isn’t the change we need. #Budget2018
— Frances O’Grady (@FrancesOGrady) October 29, 2018
A bit more for child care – for some
The Budget also included investment of a further £84m over the next five years in child care. But the money will go to just 20 councils across the country.
Angela Rayner, Labour’s Shadow Education Secretary attacked the chancellor for offering a “handful” of councils less than a million pounds a year in long-term funding for children’s services which were at “breaking point”.
Wine? Not fine
Beer and no wine, you’ll be fine. Wine before beer – it will cost you dear.
Hammond announced today he was freezing the cost of beer and spirits. A pint of beer will be 2p lower than if duty had risen by inflation. The freeze also amounts to a saving of 1p on a pint of cider and a 30p on a bottle of scotch or gin.
But the price of wine will rise. The Wine and Spirits Trade Association (WSTA) has estimated that the duty rise by inflation imposed on wine will hike the price of a bottle by 7p on still wines and by an extra 9p on sparkling and fortified wine.
Andy Fyffe, pubs lead at EY, said: “With wine prices already impacted by the decline in sterling, adding 7p to a bottle of still wine and 9p to a bottle of sparkling may encourage wine drinkers to try another tipple of choice.”