Post-Austerity Britain? Hammond’s Latest Budget | Luke Caldecott
It is important to note that any budget review or analysis should be made in the context of weighing up both the political and economic drives and implications. As this is the last budget before Brexit, with the government’s position as precarious as ever since losing its majority followed by ever-mounting pressure on the Prime Minister, we have seen much more emphasis placed on the former. That is; Hammond has officially declared the end of austerity, bringing with it both serious political and economic implications.
Most significantly, on the political side, this could be deemed as pragmatism in light of a looming Brexit and the need for pro-growth fiscal policy to dampen the shocks, but instead the fact simply cannot be avoided that it screams of capitulation to Labour after eight years of their pressure on Tory ‘austerity’. First and foremost, it was a mistake for Cameron to brand Conservative economic policy as ‘austerity’ because many significant (politically popular) budgets, such as healthcare, were ringfenced, leading to deeper cuts in other budgets. We now find ourselves in a situation where ‘true austerity’ (that of Canada in the 1990s, for example) arguably never happened, yet the Tories have essentially de facto admitted that their wrongly and unpopularly branded economic policy was in fact incorrect after all this time.
Whilst strictly speaking this isn’t true – as we cannot avoid the success of a prolonged recovery in GDP, record low unemployment levels, and beating most predictions made by forecasters – it was however wrong to brand Conservative policy as such, as it has now led to the sticky situation in which the Tories must decide between selling the message of ‘you thought that was hard? Wait until you see real austerity’ or ‘nope, you know what, Labour were right all along’. Despite this, politics aside, I believe Hammond to be moving Conservative economic policy in the right direction. Delivering on manifesto promises (albeit ones which no one even knew about or remembers from the catastrophe of 2017) and sensibly allocating the spare £13bn found in the back of the sofa, saved from exceeding expectations of our ever-so-underestimating treasury.
The highlights of the budget itself; regional development and targeting the elephant in the ‘online room’. Infrastructure spending up by 30%, an extra £30bn for road-building and much-needed reparations, and new city growth deals for deprived regions all indicate that the government is putting money where its mouth is in promoting a mixed economy within which private sector investment should increase alongside prudent public investments. These reforms, married with tax cuts such as a further increase in the personal allowance to £12,500 and an increase in the higher rate threshold by £3,250 to £50,000, show’s the government is committing to solving the UK’s productivity puzzle that Hammond set out to do initially and continue the trend of strong real wage growth. Furthermore, infrastructure-deprived regions will be where the votes the Conservatives would do well to target are located.
The new digital services and online gambling taxes show that the government is in touch with a relatively new but ignored problem. The rapidly-growing online market has remained relatively untouched by government, allowing it to expand to such an extent, via its lack of tax liability and low costs, that it is leading to town centres becoming deserted and smaller enterprises paying more to the exchequer than predominantly online multinationals. This policy works well in compliance with the £900m small business rate relief and £650m town centre rejuvenation fund. This is an injustice that rightly needs tackling, and the implications of these new policies announced by the Chancellor will be interesting to evaluate, and their success or lack thereof should be assessed, so watch this space.
However, despite some positivity, anti-business policies such as the abolition of Enhanced Capital Allowances (ECAs) for energy and water efficient plant and machinery slipped under the radar, but annoyingly embodies a shift away from pro-green but also pro-business policies that the Conservatives should look towards. Environmentalism will become more politically popular by every subsequent election and it should not be deserted only to become a left-wing message.
It is also concerning that the Tories claim to be abandoning austerity but announced that its most unsuccessful by-product, Universal Credit, is “here to stay”, with yet more money being funnelled in to further increase the costs of a profoundly inefficient and increasingly pointless policy. A future budget will need to look at reforming the policy to be more universal with lower administrative costs. Despite the Tories now claiming that austerity is over, it is puzzling to see stubbornness over its worst policies that came as a part of their self-proclaimed ‘austerity’ package.
Finally, it is always amusing to assess the changes in alcohol and cigarette duties. The Conservatives have been punitive to cigar smokers and wine drinkers in last week’s budget, with the duties increasing by 17p and 8p, respectively. It’s nice to see the Tories’ latest efforts at abandoning its elitist reputation come into force.