Philip Hammond chooses to splash the cash in his Budget rather than pay down the deficit
Chancellor Philip Hammond declared “austerity is coming to an end” as he unveiled a raft of spending increases and tax cuts on Monday.
Hammond used better-than-expected tax revenues of £12bn to pour extra cash into the NHS and bring forward by a year an increase in the 40p tax threshold to £50,000.
The new level will kick in from April 2019, as will a rise in the tax-free allowance to £12,500.
The chancellor chose not to use the £12bn windfall to further drive down the government’s budget deficit, prompting the Office for Budget Responsibility to claim this Budget was the most generous since the Tories came to power in 2010.
In a Budget speech lasting more than 80 minutes, Hammond also pumped an extra £2.7bn into the controversial welfare reform programme Universal Credit, said £2bn would be set aside for mental health care and £30bn would be spent on improving UK roads.
Hammond raised a cheer for business lobby groups by raising the annual investment allowance from £200,000 to £1m for the next two years, in a bid to boost productivity and incentivise corporate investment during a period of political and economic uncertainty.
The chancellor also announced a new tax on digital companies with global revenues of more than £500m, aimed squarely at the likes of Google, Facebook and Amazon. He claimed to have lost patience with global efforts to coordinate a new levy, and so announced that the UK would act unilaterally. However, at a tax rate of just two per cent it is only expected to bring in a maximum of £440m a year by 2024.
Hammond’s third Budget since becoming chancellor in 2016 came just weeks after Theresa May pledged to end austerity and follows a Tory commitment to spend an additional £20bn a year on the NHS by 2023.
Announcing the changes to income tax, Hammond said: “My idea of ending austerity does not involve increasing people’s tax bills and the improvement we have delivered in the public finances means that, based on the OBR’s forecast, published today, I do not need to do so.”
Other measures in the Budget included a nod to the UK’s struggling high streets, with Hammond cutting business rates by a third for those retailers with a rateable value of £51,000 or less.
On Universal Credit, a policy heavily criticised by fellow Tory MPs, Hammond announced a £1,000 increase in the amount someone can earn before the benefit begins to reduce.
The chancellor claimed that would see 2.4m families better off by £630-a-year. Implementation will also be delayed.
The Budget speech – the first to be delivered on a Monday since 1962 – also revealed public spending would increase across all government departments by an average of 1.2 per cent from next year.
However, once the NHS windfall is taken into account there will be no real term increases for individual government departments.
Hammond insisted he would look to inject more cash into Whitehall after a Brexit agreement has been reached with Brussels.
“When our EU negotiations deliver a deal, as I am confident they will, I expect that the ‘Deal Dividend’ will allow us to provide further funding for the Spending Review,” he told MPs.
The OBR’s analysis of the Budget flags up the chancellor’s decision to splash the cash rather than reduce the deficit.
Its report says: “The Budget spends the fiscal windfall rather than saving it.”
It later adds: “This is the largest discretionary fiscal loosening at any fiscal event since the creation of the OBR.”
Labour leader Jeremy Corbyn dubbed it a “broken promises Budget”, adding: "What we heard today were half measures and quick fixes while austerity grinds on.”