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Budget choices

Drafting the 2017-18 Budget would have been challenging for the Chancellor, given the many problems he was expected to address. First, there were hard-line Brexiteers in his own party who almost wanted him to fail so the P.M. would replace him with one of their own. 

Brexit has also caused a falling value of the pound leading to price increases for imported goods. Business confidence has been damaged by the uncertainties associated with Brexit and caused some to defer investments in new machinery and additional labour.

His second problem was our poor productivity record. It has been flat since 2011 but cushioned by more people entering work. Scope for that is diminishing causing the independent Office for Budget Responsibility to cut its growth forecast from 2% to 1.5%. Whereas the UK economy was growing faster than other developed economies before the 2016 referendum, it is now lagging behind them.

Inflation is a third issue which Mr Hammond had to take into account. Price increases, taken with the austerity measures designed to reduce the Government’s inherited budget deficit, meant that many people were worse off and in some cases barely managing. The Government’s austerity measures hit the public services hard, damaging morale and personnel recruitment. The Chancellor had to respond to calls for increased funding for the NHS, the police and other public services. A serious shortage of affordable houses was another need for him to address.

His response included allocating £44billion in loans and guarantees to support the construction industry to build 300,000 new houses a year by the middle of the next decade. £34million of that will be used to aid the training of more people in the construction industry with necessary skills. Planning reforms will speed up approvals and discourage land banking by developers. Local authorities will be given powers to impose 100% Council Tax on properties deliberately left empty. Stamp duty was abolished for first time home buyers on the first £300,000 of the purchase price.

Mr Hammond’s response to the low productivity problem included £42 million to fund a teacher development premium to improve classroom skills in failing schools and a £600 payment for every pupil taking ‘A’ level Maths. He thinks poor numeracy and literacy contribute to poor productivity. He called secondary schools to equip every pupil to be computer literate and allocated £30million to increase digital learning skills. Other measures to enhance productivity included £1.7 billion for the Transforming Cities Fund, £330million to improve train services in the north and midlands and funds to replace obsolete rolling stock in Tyne and Wear and £123million for the Redcar Steel works. He also found £400 million to establish a charging infrastructure fund for electric cars.

Income taxpayers will be a little better off as the tax threshold will be increased to £11,850 and the higher rate threshold to £46,350. The National Living Wage will rise next April by 4.4% to £7.83. The waiting period for claimants for Universal Credit is reduced to five weeks but those on housing benefit will continue to receive it for two weeks to prevent eviction problems. Smokers face a price increase of 28p on a packet of 20 but drinkers have been spared increased duty except those who drink high strength ‘white ciders’ who will pay more in 2019. Fuel duty was frozen again but car tax will rise with inflation whilst tax on dirty diesel cars will rise by one band next April. This won’t apply to vans.

Inevitably, the Leader of the Opposition rubbished the budget saying those looking for help from it had been let down, concluding “this is a Government no longer fit for office”. That is harsh given the circumstances the Chancellor faced. We would all have liked a give-away budget but in the light of the economic realities facing the Chancellor it would have been irresponsible.  The budget deficit inherited from the last Labour Government in 2010 won’t be eliminated for at least another decade.  Whatever one’s politics the need for wisdom for those who have to take decisions that affect millions need our regular prayers.

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