The Chancellor Phillip Hammond has set out his final Budget before the UK leaves the EU. Pressure had been building in the run up to this year’s Budget, most acutely around Universal Credit, with more than 20 Conservative MPs, including former Work and Pensions Secretary Iain Duncan Smith, calling for billions more to be put into the scheme and former Brexit Secretary David Davis saying cuts to the scheme had “gone too far”. There was speculation of an extra £2 billion in funding, so it’s not clear whether they will be placated by the £1 billion over five years that the Chancellor was able to offer.
Mr Hammond has found himself somewhat trapped by the prime minister’s statements at the Conservative Party Conference this month, where she said “when we have secured a good Brexit deal for Britain, at the spending review next year we will set out our approach for the future… a decade after the financial crash, people need to know that the austerity it led to is over.” Many people have forgotten the detail and now remember Theresa May saying austerity is over, increasing the pressure on the Chancellor to ease the burden felt among workers.
It’s therefore of little surprise to see tax cuts being brought forward by a year, a £1 billion boost to Universal Credit and a continued freeze on fuel duty.
The Budget contained little on Brexit, though the Chancellor remains confident though not complacent about securing a Brexit dividend. He had warned over the weekend that if the UK were to leave without a deal then the government would need to take a “different approach frankly… a new budget.” Indeed, the National Institute of Economic and Social Research has calculated a £30 billion difference over the next five years between a deal or no-deal scenario.
Less likely to be pleased will be global technology companies who have been put on notice the UK is looking to crack down large digital firms avoiding domestic tax obligations.
The Chancellor had the opportunity to try to shake off the Eeyore image pushed by some of his detractors, particularly around Brexit, but he chose not to mention the new 50p coin that will be minted to mark ‘Brexit Day’ on 29th March 2019. The coin will display “peace, prosperity and friendship with all nations” – showing the world the UK is open for business.
Although the Budget had been framed as the ‘Brexit Budget’ it ultimately focussed on more domestic issues of high streets, tax and infrastructure.
- If the UK leaves without a deal, a new budget will be required
- New 50p coin to mark ‘Brexit Day’ on 29th March 2019
- An additional £500 million for Government departments and devolved institutions for Brexit preparations (meaning over £4 billion has been allocated to prepare for exiting the EU)
- No stamp duty for all first time buyers of shared ownership property up to £500,000
- £500 million of funding for the Housing Infrastructure Fund to build 650,000 houses
- £30 billion created for a five-year fund for motorways, major roads and pothole repairs, plus £420m immediately available for potholes, bridge repairs and other minor works this financial year
- £250 million for rural broadband to connect schools and libraries to “full fibre”
- Fuel duty remains frozen for ninth consecutive year
- £60 million to plant more trees – £10 million of which is set aside for councils and charities to plant more on streets and urban areas
- The Chancellor described the NHS as the Government’s “number one priority”
- £20 billion a year funding boost, though this was announced earlier in 2018
- £2 billion of this will be put into mental health services annually by 2023, including specialist units in A&E departments and in schools (this supplements the current £12 billion mental health budget)
- Social care services receive a boost of £650 million after years of cuts to local authority funding. This is on top of £240 million already announced
- No-interest loans for people locked in to payday loan debt
- On Universal Credit, an additional £1 billion of funding will be announced as part of a 5 year package of measures to aid transition as existing claimants move on to UC, and the work allowance will rise by £1,000/year. There will also be an extra £1.7 billion to reverse planned cuts
- The Annual Investment Allowance will be increased from £200,000 to £1 million for two years
- Over the next two years all retailers in England with a rateable value of £51,000 or less will see their business rates cut by a third, an annual saving of up to £8,000 for up to 90% of independent businesses
- Temporary business rates cut by a third for almost 500,000 small retailers to boost the high street – at a cost of £900 million
- Changes to planning laws to revive town centres and a £650 million fund to improve infrastructure and transport and to help re-develop empty shops as homes and offices
- Undertake a wedding venue review to look at how and where marriages take place which could make it easier for small businesses, including pubs and restaurants, to host ceremonies
- Increased the Industrial Strategy Challenge Fund by £1.1 billion
- The Government will honour existing PFI contracts but will abolish them in the long term
- Small firms will see the amount they have to contribute to the Apprenticeships Levy halve from 10% to 5%, amounting to a £695 million package to support apprentices
- 86% schools are now rated ‘good’ or ‘outstanding’, up from 68% in 2010.
- A one-off £400m direct bonus to schools to buy “little extras they need”, averaging at £10,000 per primary school and £50,000 per secondary school
- £300m for cross-community education in Northern Ireland
- Debt as a share of GDP is forecast to fall to 82.58% in 2019/20, down from forecast 83.7% in 2018/19
- Borrowing forecast to be £31.8 billion in 2019/20 falling to £19.8 billion by 2023/24
- The OBR has revised up participation in the labour market, predicting 800,000 more jobs in the economy by 2023 with growth forecasts of 1.3% for 2018 rising to 1.6% in 2019
Devolved assemblies and metro mayors
- Funding for 10 University Enterprise Zones
- £150 million for digital catapults in the North East, Northern Ireland and the South East and the Medicines Discovery Catapult
- £37 million of additional of development funding for Northern Powerhouse Rail
- By 2021 there will be an additional £950 million for the Scottish Government, £550 million for the Welsh Government and £320 million for a Northern Ireland Executive
- Income tax cuts will be brought forward to April 2019, a year earlier than planned which will see the personal allowance increase to £12,500 and the higher threshold to £50,000
- Close loophole on self-employed who set themselves up as private companies to avoid paying National Insurance.
- UK will introduce Digital Services Tax to ensure tech giants pay their share towards public services. It will be targeted so only established companies will pay it, not tech start-ups
- The Digital Services Tax is not an online sales tax and will only be paid by firms which generate global profits of £500 million p.a.
- It will come into effect in April 2020 and generate £400 million in tax revenue p.a.
- There will be a consultation before the tax comes into effect and the Government will continue to engage with the OECD and G20 on proposed future reforms, but will proceed if no international agreement can be found
- £1bn in funding for the Ministry of Defence for 2018/ 2019
- Extra funding will be spent on cyber warfare capability, anti-submarine warfare and the Trident nuclear deterrent
- £10 million in funding will be made available for the Armed Forces Covenant Fund Trust to treat veterans with mental health conditions
- A new tax on the manufacture and import of plastic packaging that contains less than 30% of recycled plastic, following a consultation on the detail and timetable
- No levy on disposable plastic cups, with the Chancellor saying the evidence did not yet indicate such a tax would have a decisive impact on plastic cup use. The government will observe and intervene in the future if business does not make sufficient progress
The reality is that whatever the Chancellor claims today austerity is not over, and far from building a strong economy, eight years of austerity has damage our economy, delayed and weakened the recovery and endlessly proposed fixing the deficit.
Rt Hon Jeremy Corbyn MP, Leader of the Labour Party
This was a rock-solid budget, bringing more treats than tricks for business. It recognises the enormous contribution enterprise has made to balancing the UK’s books through jobs, pay and tax and responds to many of the recommendations that firms have made.
Carolyn Fairbairn, CBI Director-General
Today’s commitment to greater infrastructure spending, particularly the emphasis on local transport and more money for the National Productivity Infrastructure Fund, are important steps towards addressing the UK’s productivity gap. The extra support for the Transforming Cities Fund and for other UK regional and national initiatives are further positive moves to support prosperity across the whole of the UK.
Miles Celic, CEO, TheCityUK
HUME BROPHY COMMENTARY
The end of austerity? Not quite yet, but a significant loosening of the purse strings. This budget shows a desire to do something on domestic policy and develop what the government hopes will become their post-Brexit narrative. As always, the devil will be in the detail, but the sort of government that we might have after March 2019 is becoming clearer.
James Wharton, Chairman Corporate and Public Affairs, Hume Brophy
Minister for the Northern Powerhouse and International Development, 2015-17; Conservative MP for Stockton South, 2010-17