Hammond says end of austerity is in sight as he boosts spending

Philip Hammond claimed that “austerity is coming to an end” as he took advantage of better-than-expected tax revenues to promise a £30bn boost in public spending by 2024.

The chancellor used a 71-minute budget speech to announce immediate short-term increases in spending on universal credit, defence and equipment for schools.

Hammond also promised to introduce a special tax on Amazon, Facebook and other digital giants in April 2020 raising £400m a year although he warned that if the Brexit talks collapsed he would have to hold an emergency budget in the spring.

But the chancellor was immediately criticised by Labour’s Jeremy Corbyn, who accused him of presiding over “half measures and quick fixes while austerity grinds on”.

Hammond told MPs that his budget was aimed at “the strivers, the grafters and the carers” and towards the end repeated his central message saying that “austerity is coming to an end, but discipline will remain” – a month after Theresa May told the party’s annual conference that austerity was ending.

Public sector borrowing

The chancellor was taking advantage of a surprise boost to tax receipts in the current year, and pledged to spend £2.7bn more on universal credit, £1.7bn of which comes from increases to the work allowance – the sum people are allowed to earn before they start to lose their benefits – of £1,000 a year.

Hammond also promised to spend £1bn more on defence for this year and next and £400m on school equipment – as well as an additional £420m in the next year to tackle potholes. He also promised an extra £650m on social care and to create a £675m fund to help high streets.

A manifesto pledge to increase the tax-free personal allowance to £12,500 for basic-rate tax payers and to £50,000 for higher-rate tax payers was brought forward a year to April 2019, but Hammond said it would increase in line with inflation after that.

Public services were promised an extra 1.2% a year starting in 2020-21 by Hammond, although officials subsequently stressed this was a forecast, having contracted by 3% a year between 2010 and 2015 and 1.3% a year in years following.

National debt

But the chancellor was accused by the OBR of having spent almost all the gains from the sunnier economic outlook, with budget measures costing £30.5bn by 2023-24. It warned that the chancellor was in a position to build a much larger buffer against a bad Brexit, but chose to spend the gains on easing government cuts.

GDP chart

The OBR said: “Buoyant tax receipts and an improved outlook for employment have delivered the government a significant fiscal windfall since March, sufficient to deliver its objective of a balanced budget by 2025.

But this had already been swallowed up by the prime minister’s promise of more money for the NHS in June, to which the chancellor has added a further near-term tax and spending giveaway.”

The chancellor also warned MPs against a spending splurge before an uncertain outcome to the Brexit negotiations, which he said were at a “pivotal stage”. “But get it right and we will harvest a double deal dividend,” he told the Commons.

Public sector borrowing

Borrowing this year will be £11.6bn lower than forecast at the spring
statement, at 1.2% of GDP, and is then set to fall in cash terms from £31.8bn in 2019-20 to £26.7bn in 2020-21, £23.8bn in 2021-22, £20.8bn in 2022-23 and £19.8bn in 2023-24.

Forecast GDP growth increased from 1.3% this year to 1.6%, while in 2019-20 and 2020-21 it will hit 1.4%. In 2021-22 growth is expected to be 1.5% and 1.6% in 2022-23.

But Corbyn told MPs that two years ago, growth was forecast to be at 2.1% this year and the year after. “This is not a strong economy, but a weak one, with chronically low investment”.

Employment

As expected the chancellor froze fuel duty for an eighth year, at a cost of about £800m to the exchequer, and he retained entrepreneurs’ relief, though he restricted access by extending the qualifying period from 12 months to two years.

A freeze on beer, cider and spirit duties will be imposed over the next year. However, wine duty will rise in line with inflation, and tobacco in line with its longstanding inflation escalator.

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