This Monday (29th October) Philip Hammond delivered his 2018...
Philip Hammond did not use the word in his budget speech but Brexit lay at the centre of his thinking. The economic statistics gave him a positive platform. The economy has grown more than forecast, public sector borrowing is less than expected, and a record number of people are in work.
He had scope to spend but resisted the temptation. Instead it appears that he has set aside £60 billion as a Brexit reserve. EU voices are calling for the UK to pay that amount to meet commitments made as a member, before we leave. That will be part of the exit negotiations but if we are to continue trading with EU members on favourable terms without being in the single market or the customs union, which the Prime Minister wants, it could cost us that sort of money.
However, the Chancellor’s prudence in this comes at a cost, incurring which might not be considered prudent. The nation faces a number of serious problems that might have been eased by a share of the £60 billion. The NHS and social care are obvious items in that list. Hammond allocated £2billion for social care over the next three years but most commentators think that sum is needed in this and every year before the 2020 election. Similarly the NHS trusts needs much more than the £325million capital allocated to those which have already agreed efficiency plans and the £100 million for hospitals to have GPs on site. We also have a major shortage of homes and 4000 people sleeping rough but there was nothing set aside to tackle these problems.
The employment figures are good but 900,000 people, many of them women, are on zero-hour contracts and have no idea how much they will take home at the end of each week. That may suit those who want the flexibility a zero-hours contract gives them but not those who need a regular and dependable income. The National Living Wage was raised to £7.50 per hour but the Minimum Wage was not changed. The personal income tax allowance will rise to £11,500 and the higher rate tax threshold to £45,000, as already announced. The Chancellor also increased the National Insurance Contributions the self-employed will have to pay unless they earn less than £16,250. This broke the manifesto promise not to increase taxes but he justified it on the grounds of fairness because the self-employed have always paid less than other workers.
The biggest problem the Chancellor did recognise is Britain’s poor productivity. ”We are 35% behind Germany and 18% behind the G7 average and the gap is not closing”. His response is to invest the £23 billion more in infrastructure and innovation that he announced last autumn. £300 million of this will be used to support 1000 new PhD places and £270 million for work on technologies such as robotics and driverless vehicles that will have a transforming influence on how we work. They will challenge many when robots and machines take over jobs currently done by low skilled labour. That prompts a need to prepare people for when that happens and the budget included £500 million to shake up post 16 technical education and £500 million for scientific research.
The budget has inevitably been criticised by the Opposition but also by some Conservatives unhappy about the hit on the self-employed. Inflation will add to the pressures on households ‘just managing’ whom Theresa May said were a priority. It may be prudent to take a long view related to Brexit but anyone struggling to cope with poverty, homelessness or inadequate health and social care might disagree. The Chancellor has to make this judgement and needs our prayers even if we disagree with his priorities.