Budget 2018: New swings and broken roundabouts

Budget 2018: New swings and broken roundabouts

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The first thing that can be said about the recent Budget is that it was better than some of its predecessors. That is, it didn’t unravel immediately. You might think this a low bar to clear but, frankly, we live in an era of reduced expectations. At least Philip Hammond’s Budget was not immediately dubbed an “omnishambles” presentation. In the circumstances, that almost seems like a victory.

The chancellor downgraded the Prime Minister’s promise that austerity was at an end by noting that its end was only within sight. And with good reason. Once extra money for the NHS has been found, most departments will receive no additional funding. They will continue to be asked to do more with less.

Still, the chancellor accepts that economic growth, not Budget surpluses, are key to restoring the public finances and even, wonder of wonders, trimming the size of a national debt that has rocketed since 2008. If this amounts to, rhetorically at least, burying George Osborne’s legacy then so be it. Then again, the editor of the Evening Standard is not an especially popular figure in Downing Street these days.

Here, though, is the disagreeable reality: vigorous economic growth is not on the agenda. The government’s own forecasts, like those compiled by the Institute of Fiscal Studies, suggest growth will barely exceed 1.5 per cent in any of the next five years.

Now these estimates may, of course, prove mistaken – and it would be good if they were – but they are based on the best information we currently have. Meagre growth is better than no growth but it’s still not very good. Not least because no one expects the extra money announced for the NHS to be anything more than a stopgap, a means of purchasing time to prepare for the next, still more onerous, challenges ahead. (Something similar might be said of the ‘new’ money found for the Ministry of Defence; at best, this helps oset the impact of previous cuts.)

Indeed, if current trends continue, the government will soon better be understood as a healthcare conglomerate that happens to do some other things. In 2000, healthcare spending amounted to 23 per cent of government spending; by 2023/24 it is expected to account for 38 per cent of the money the government spends.

That has significant implications for healthcare, obviously, but also for every other government department. As a share of national income, government spending is back at the same level it was when Labour were last in government; scope for reducing that level of spending seems sharply limited, to say the least.

Still, some other trends are also apparent. Income tax has become all but untouchable. Indeed, the basic rate of income tax has not been raised since the 1970s. That’s when everyone actually understands a tax. (This is grist to my contention that if PAYE were abolished and everyone had to write a cheque to HMRC the movement for lower taxes would be immeasurably strengthened.) 

But if income tax recedes in importance, the slack must be taken up elsewhere. What the chancellor gives on the swings he removes on the roundabouts. Increases in the personal allowance – and in the threshold above which tax is levied at 40 per cent – must be paid for elsewhere. As so often, the self-employed – upon whom the economy depends in ever greater part – are an obvious and easy target.

The government enjoys boasting about the enviable flexibility of the British labour market (one reason why unemployment is low; though that is also a feature of low productivity), yet its changes to IR35 seem guaranteed to reduce the very flexibility the government considers so important.

Calculations by IPSE suggest that half of hiring managers in the public sector have lost vital and highly-skilled workers as a result of the changes to IR35, which are now being rolled out into the private sector.

The government believes in incentives except, it seems, when those incentives act in a negative fashion. The Budget estimated that as much as £3 billion could be raised by switching the burden of IR35 declarations from employees to employers. That seems heroically optimistic, not least because complicating the system will drive many players out of it.

The self-employed, however, are an easy target. We doubtless all have a shivering recollection of the chancellor’s past attempts to increase National Insurance Contributions for the self-employed and although that battle, thanks in no small part to a robust rearguard action by IPSE, was won last time such a measure was proposed we should expect it to have to be refought all over again at some point in the future. The Treasury neither accepts nor forgets its defeats; it just considers them victories postponed.

Brexit, of course, may yet change everything. The odds must remain against a calamitous no-deal Brexit but that possibility remains alive to concentrate minds. Brexit consumes so much of the government’s bandwidth, however, that it is unable to make progress elsewhere.

In that respect, the chancellor’s Budget was a holding affair, not the beginnings of a new course, strategy or era. The problem remains that real and sustained growth seems as far away as ever. The economy may do better; it’s not going to do well enough.

By Alex Massie, Freelance columnist for the Times and Spectator

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