Appeasement Over Ideology, Growth Over Savings, A Change in Direction: Hammond’s second budget │ Luke Caldecott
Cast your mind back to Philip Hammond’s first budget back in March; opinion polls strongly in his favour, however with only a wafer-thin majority and no manifesto to back up the new party leadership, he remained constrained by prior commitments from the deceased Cameron-Osborne regime. Back then, no individual in the United Kingdom could’ve possibly predicted the circumstance the Chancellor finds himself in now; minority government, marginally behind in the polls, even more (probably predictable) Brexit uncertainty, and the slightest of mandates to deliver a woefully mediocre manifesto that even the most ardent Conservative would struggle to recall. This has made the Chancellor fiscally constrained by ‘revised down’ budgetary figures and forced to appease his new friends in government and opposition parties to pass the budget through. Faced with the challenge of helping to set the economic climate as we go further into the Brexit negotiations, how did the Chancellor get on today?
The first thing I noticed was the attempted appeasement to young people. Positively, it is wonderful to see democracy in action, with Labour securing a landslide victory amongst under 30s accompanied by a larger turnout, the government has tried to appease millennials to claw back their support. One thing that is most welcome is that the Conservatives have finally lost their complacency. The Chancellor finished his speech on a high; abolishing Stamp Duty for first time buyers up to £300,000. Brilliant. Fantastic. A May government cutting taxes, who knew? After the first Conservative manifesto since 1966 to NOT promise a single tax cut, this was very welcome news. The electoral humiliation faced by the Conservatives this year has taught them a lesson: people don’t like taxes, and taxes like the Stamp Duty hit low income earners and the young, aspiring house owner, an ideal target for the Conservatives electorally.
Not only does this show the Conservatives are thinking about young people, it also addresses housing, arguably the most ‘in need of reform’ area of government policy. Other notable policies he mentioned include an age 26-30 railcard, a National “Living Wage” increase by 4.4% next fiscal year, extra research funding, a pledge to replace EU research funding post-Brexit, and freezing alcohol duties. Notice a theme? Young people. Even if a railcard is a timely distraction from the extent to how broken the housing market is and how 300,000 homes per year is nowhere near enough to deal with increased housing demand, and that the national living wage isn’t a living wage, it’s still nice to see they’re thinking of us. At least the cheaper beer and whiskey means we can save a few quid on drowning our sorrows.
More needs to be done.
A fund to revive housing estates and explore new development sites is a good start, but the Conservatives must be building at least 500,000 houses a year to cope with current levels of net migration and dampen-down increases in house prices. Whilst investment is welcome, this can also be helped without spending a single penny; relaxing planning laws and removing height restrictions on buildings in urban areas to name a few ideas that think-tanks have espoused and should be considered. If the government is now looking towards borrowing at low interest rates to invest, it should do it first and foremost in housing, that’s where the greatest returns are made.
This brings me to the second thing I noticed; austerity all but abandoned. Well, spending increased under Osbornism, but that’s what he called it so that’s what we must treat it as (nice work, Gideon). Reading down the list of budgetary proposals, money is being thrown at politically popular areas; a homelessness task force, £44bn on housing, £2.3bn for research and development, over £1bn combined for 5G broadband and electric cars, £28m in Grenfell tower reparations, continued increases in the personal allowance and 40p tax threshold, £1.5bn for universal credit… with proposed tax rises in fuel duty being scrapped. This leaves the only noticeable increases in tax being on tobacco and the duty on white cider, with spirit and beer duty conversely being frozen. A probably unintentional however welcome redistribution of wealth from the South to the North, Scotland, and Wales. More progressive tax hikes have come in the form of a freezing in air passenger duty being funded by a rise in duty on private jets, and a 100% council tax premium on empty second homes.
This can be interpreted in a variety of ways; one might argue that ideological politics has been abandoned in favour of pragmatism, or that pragmatism has been abandoned in favour of appeasement. The Conservatives appear to have moved towards a balanced approach, following the words of the Chancellor. Going for longer-term savings through creating an investment focused economic plan with emphasis on maintaining growth and thus reducing the debt as a % of GDP but at a slower rate, a potentially wise decision at a time of political uncertainty. “Building a Britain fit for the future” has replaced the “long-term economic plan”, focussed on growing the economy instead of attempted saving, a huge change in direction for the party ideologically. Interestingly, Corbyn avoided directly criticising the budget’s content, instead attacking the state of Britain today, totally missing the ball played by Hammond as he plans for the future.
This is not me coming out in support of Hammond, but borrowing smaller amounts than Labour’s Corbynomics would to invest in the economy and still see forecasted deficit and subsequent debt reductions may be a very smart move. Being seen to be fiscally prudent without cutting services, undercutting Labour’s more ambitious spending plans but still taking an ‘invest to grow’ outlook, and subsequently leaving Labour without a complaint to make has at the very least cemented Hammond’s position in the Treasury. A budget few can complain about at a time where Corbyn’s support seems to have peaked, the new Conservative economic outlook is one of modernisation and putting their money where their mouth is. Popularity or pragmatism? They’re going for both.