An end to austerity (just)
30 October 2018, Blog
Unusually the narrative for Philip Hammond’s Budget was not set by him, but by the Prime Minister in her speech to Conservative Party Conference earlier this month. By announcing ‘an end to austerity’, the Prime Minister dictated that the Chancellor needed to at least make a gesture towards loosening the fiscal purse strings. With the OBR assuming Brexit will be successful and forecasting a large windfall from better than expected tax receipts, and with growth forecasts for the economy increasing, Philip Hammond appeared to have around £20billion to live up to the Prime Minister’s narrative by spending more on public services.
However, although this sounds like a large windfall, the reality is that the extra £20billion has almost entirely been promised to the NHS already – as a 70th birthday present. This means that despite Mr Hammond lauding an upcoming average funding increase of 1.2% per government department in the spending review, taking out the increased health spending brings this average down to 0%. So austerity is technically over but hardly the big commitments to large funding increases the rhetoric might indicate.
This is perhaps why large decisions about spending commitments were generally kicked down the road to the upcoming full spending review in 2019, with the new funding commitments largely acting as short term (and expensive) funding corrections for areas that are hurting the government politically rather than dictating long term policies. There was additional funding for local authorities to cover short-term costs of social care funding, money to respond to criticism of the Universal Credit roll-out, £1billion of additional funding for the armed forces, measures to help struggling high street businesses and a decision to bring forward increases in the personal tax allowance and an increase to the higher rate tax threshold by a year. Mr Hammond also took steps towards introducing a new digital tax on the likes of Facebook and Google; but with the measures only set to come into force in 2020, this will not be an immediate revenue generator for the government.
But the hints about the mammoth funding review to come are the key moments of the Budget. Despite the end-to-austerity rhetoric, there is unlikely to be large spending increases across Whitehall and government departments and industries will have to work hard to be first in line when new funding is handed out next year. In any event, with all of the above premised on the UK achieving a good Brexit deal, it could be all change by 31 March anyway. So an end to austerity, just about, for now.