Later today, Chancellor Philip Hammond will announce his Autumn 2018 Budget. Melanie Powell, Senior Lecturer in Economics at the University of Derby, gives her pre-Budget view on what’s in store.
This year, the Chancellor has moved to just one Spring Statement for the Budget, but this makes it less likely that there will be substantial spending to reduce austerity.
The high level of Brexit uncertainty around getting an outline trade deal before March 2019 means the Chancellor may have to redraw his plans in early spring next year, so he won’t commit too much now. But it is business as usual for this Chancellor.
He has made several pre-budget statements on some spending plans, and he has found more money down the back of the Chancellor’s sofa. The announcement that tax revenues are considerably higher than forecast, and local council spending lower than forecast, has given the Chancellor up to £15bn more to spend without raising planned borrowing or taxes.
This is clearly a relief, given the commitment to spend an extra £20.5 bn on the NHS by 2022, £12bn of which will be spent between 2019-20 and 2022-23.
The Chancellor’s pre-Budget announcements also added an extra £2bn a year for mental health support services, a £25.5bn upgrade for roads with funding from Vehicle Excise Duty, additional funding to support Universal Credit, and £1.5bn in rates relief for small high street businesses with a rateable value below £51,000. None of these can even begin a so-called ‘end of austerity’.
The Institute for Fiscal Studies recently estimated this would require additional funding of £19bn a year to 2022 over current planned cuts. This level of spending would entail additional borrowing and would scotch the Chancellor’s plans to eliminate the deficit and gain control of the £1.8 trillion of national debt by 2025. There are still £7bn of benefit cuts and £4bn of Government department cuts to come.
But this Chancellor is bound to pull at least one rabbit out of the hat today. He may talk about plans for a revenue tax on digital firms, but it is very unlikely to be more than a plan. This type of tax could have unexpected consequences including US retaliation.
He will make much of any changes to housing planning permissions to help the housing market and stimulation of infrastructure and possibly investment, but he will find ways to take more tax without raising major tax rates or cutting tax thresholds.
Watch this space.