Yesterday’s Budget made it clear that Philip Hammond, Chancellor of the Exchequer’s only giveaway to the country was the promise of not one, but two, major fiscal events in 2017. Most notably, absent from the Budget was any mention of Brexit, which caused consternation across both sides of the House and beyond, although was unsurprising given the fraught revisions of the Brexit Bill currently going on in the Lords.
While the Office of Budget Responsibility (OBR) revised its borrowing estimate for the current financial year by £16.4bn, that looks set to increase to £58.3bn in 2017-18. This is forecast to gradually reduce down to 0.7% in 2021-22, however borrowing is still predicted to be £100bn higher by 2020 than forecast in March 2016.
The 2017 growth forecast has been upgraded to 2%, providing some optimism, although hopes for a continuing trend have been dashed by the OBR as it downgraded growth forecasts for 2018, 2019 and 2020.
The most significant announcements, which signal the most notable changes from the Cameron to May regime, are the increase of National Insurance (NI) contributions for the self-employed and a fund to set up new grammar schools. The NI changes directly go against the Conservative 2015 election manifesto which also contained no mention of new grammar schools.
The absence of ‘giveaways’, the hallmark of the Osborne Budgets, indicates a snap election is off the table. This is in spite of a number of figures including Tory Grandee William Hague calling for them to capitalise on an impressive 18 point Conservative lead in the polls last month. The Government hasn’t produced any showy, vote-winning announcements, indicating that it is content to hold its small majority, rather than go to the polls before 2020.
A pensions crackdown has been seen as the most surprising move from the Treasury. A reduction in tax-free allowance on share dividends from £5,000 to £2,000, will come into force in April 2018, raising £2.63bn by 2021-2022. However, a 25% tax charge on individuals requesting transfers to qualifying recognised overseas pension schemes (Qrops) came into force at midnight after the Budget. The only exemptions will be if the individual and the scheme are in the same country, both are within the European Economic Area (EEA), or the Qrops is provided by the individual’s employer. Treasury officials estimate this move will see £65m generated in tax revenue in its first year and a total sun of £315m up to the financial year 2012/22.
The increase of NI for the self-employed (a growing group which encompasses a combination of some of the high and low earners) will generate just over £2bn between now and 2021-22, although ministers have made reassurances that those earning below £16,250 will pay less than under the current scheme.
In response to concerns about the 1 April business rate rises, £435m will be made available for support, including a £300m hardship fund for those worst hit while rate rises for businesses losing existing relief will be capped at £50 a month. Relief will also be provided to any pub with an assessed value of under £100,000, roughly nine in every 10 pubs in England and Wales. While some, including the British Chambers of Commerce said concerns had been met, others highlighted the disproportionate impact the rises would still have across London and the South East, with measures only acting as a short term ‘sticking plaster’.
In health and social care, accusations of short term grandstanding were levelled at the Chancellor. Declaring the Conservatives “the party of the NHS” an extra £2bn for social care, £100m for under pressure A&E departments, and £325m to controversial sustainability and transformation plans (STPs) were announced. The council chair of the British Medical Association, identified “a £30bn gaping hole in NHS finances” in NHS funding which it was alleged that the Chancellor had done nothing to address.
The confidence with which the Government delivered tax rises, and financial crackdowns, indicates a hitherto unprecedented confidence that even breaks from core Conservative pledges will not dissuade voters in 2020. Certainly the Labour party’s response to the Budget was lacklustre in spite of advanced notice of most of the key announcements, and press reports indicate a more structured and direct opposition to some measures on the Conservative back benches than Her Majesty’s Opposition frontbenches.
The Budget may not be the most popular ever, but it seems the Tory Government is confident that whatever it does, there is no risk of losing its relative popularity.