The chancellor Philip Hammond released the first Budget of the new parliament on Wednesday, pledging to resolve the gaping issues in the UK’s housing market.
The first budget of a parliament is often an opportunity for a chancellor to lay out a coherent economic and fiscal strategy that will define his or her tenure in charge. Gordon Brown’s 1997 “people’s budget” springs to mind, certainly in terms of the rhetoric and the way this reflected and went on to further determine the mood of the nation.
20 years later, cornered like a boxer and lacking the demonstrable political nouse to manoeuvre his way out, Hammond has delivered his Budget with a brave face.
— UK House of Commons (@HouseofCommons) November 22, 2017
An impossible task
Prior to Wednesday’s hour-long speech, members of the Conservative party were reportedly ready to attack Hammond and his camp, largely due to his advocacy of a softer Brexit. One of the chancellor’s allies told the Financial Times in the run up to the Budget that: “They are waiting for him to fail, the pressure is extraordinary. It’s ludicrous to be honest.”
Rarely has there been a UK Budget delivered under such intense pressure to reconcile the wishes of powerful factions on all sides; and not for two decades has such an address been delivered in the autumn. With an abnormally weak prime minister leading an essentially minority government, both of which that may not last the distance, coupled with the country’s economic fragility and the political impossibility of raising taxes, Hammond’s Budget was bound to contain bruisers.
Many of Hammond’s budget limitations were self-imposed. He committed to abiding by projections for growth forecast by the independent Office for Budget Responsibility (OBR). In short, the OBR published findings in October stating that it has consisetntly overestimated the UK’s productivity over the past seven years.
With growth predictions cut from 2% to approximately 1.5% for the next five years, it limits ‘Spreadsheet Phil’s’ room for manouvre on issues such as the housing crisis, financing the NHS and infrastructure spending.
The Tories sensed a bloodbath. Did they get one?
Despite the slashing of growth forecasts, housing dominates Thursday’s headlines. Mr Hammond has pledged £44bn in overall government funding for housing in order to meet the objective of building 300,000 new homes a year by 2025.
Mr Hammond’s ‘white rabbit’ moment, typically the surprise package in any budget, was the decision to scrap stamp duty on any homes bought by first-time buyers under £300,000. This is a nod to the younger generations, who voted overwhelmingly against the current government at the general election in June.
It is thought that 95% of all first time buyers will benefit. Prior to the changes, the average first-time buyer in the UK had paid about £1,660 in stamp duty on a property costing £211,980.
Taxation on smoking will continue to rise at 2% above inflation while taxation on alcohol has been frozen. The Treasury has promised £1.5bn to “address concerns” of the rollout of Universal Credit while £3bn is being set aside over the next two years in preparation for a ‘no deal’ Brexit, though more may be allocated “if and when needed.”
To put #budget2017 in perspective, £2.32bn for NHS in 2018/19, £1.5bn to prepare for Brexit, £840m fuel duty freeze, £560m for stamp duty relief for first time buyers, £300m for softening impact of universal credit, £225m alcohol duties freeze. Are these your priorities?
— Robert Peston (@Peston) November 22, 2017
One of Mr Hammond’s main ambitions is to digitise the UK economy. Consequently, the chancellor has included a £400m infrastructure fund for electric vehicle charging, raised taxes on new diesel vehicles and pledged money towards improving the UK’s 5G network capabilities. Finally, the government will spend £1.6bn more on the NHS next year and £350m this winter.
The problems with the Budget were predicted and perhaps unavoidable. Philip Hammond’s ‘trickiest Budget of a generation’ leaves huge questions regarding where the money will come from in the face of the growth downgrade; but in terms of avoiding the blood, he looks to have succeeded.
Many Tory backbenchers have come out with cautious support for what was a chancellor in a hole and what might be drawn from the speech today is that he has not kept digging. “I’ve heard a lot worse budgets” Nigel Evans, MP for Ribble Valley said while John Penrose, MP for Weston-super-Mare agreed that:
“We’ve simply got to build more homes, whether they’re to rent or to buy, so they’re cheap enough for everyone to afford.”
That said, Mr Penrose’s congratulations were immediately refuted by the OBR who argued that the slashing of stamp duty is likely to raise house prices, at least in the short-term.
Another inevitable critic was Jeremy Corbyn, the Leader of the Opposition, who hammered home the point that the shambolic rollout of Universal Credit seems to only have been prolonged and slightly abated by the £1.5bn support pledge.
The chancellor’s Autumn Budget came at one of the most dire times in history of any fiscal announcement. It wasn’t the bloodbath either wanted or expected by swathes of the Tory and Labour parties, and Mr Hammond will keep his job.
As for the Budget itself: the winners? First-time buyers. The losers? Perhaps the entire UK as the real headline-maker of this Budget was not stamp duty but rather the growth estimations downgrade.
Not only does the UK economy look in an increasingly brittle state, but the Budget 2017 is unlikely to have provided a clear solution to the challenges the UK faces. Unfortunately, clarity will always remain contingent on Brexit negotiations, and until this has been achieved, Mr Hammond in 11 Downing Street can only second-guess the future of British economic growth.