Hammond delivers largest giveaway Budget since 2010

Philip Hammond declared that Britain’s era of austerity was “finally coming to an end” as he delivered the largest giveaway Budget since 2010, but the chancellor warned that a disorderly Brexit could cast a cloud over cash-starved public services.

After eight years of economic pain, upgraded forecasts for government borrowing and growth enabled the chancellor to fund an annual increase in NHS spending rising to £27.6bn by 2023/24, balancing some personal tax cuts with increases in business and other taxes.

But Mr Hammond’s speech was also a plea to Conservative Eurosceptic MPs to back a soft exit from the EU that maintains free trade with the continent, to allow him to be more generous when he carries out a spending review next year.

“We are at a turning point in our history and we must resolve to go forwards, not backwards,” he said during a generally upbeat Commons statement, greeted by cheers from Tory MPs.

Mr Hammond’s NHS spending spree and his decision to bring forward tax cuts prompted some Tory MPs to speculate that he might be eyeing a 2019 general election; the idea of an early poll to break the political deadlock on Brexit has been widely discussed at Westminster.

His aides said an early election “did not cross our minds” during the planning of Monday’s statement, adding that it was a long-term Budget looking beyond Brexit.

The chancellor claimed that a “double deal dividend” from Brexit would release billions of pounds for further tax cuts and a boost in funding for other public services.

Under current spending forecasts, while the NHS would enjoy a 3.4 per cent real increase every year for five years, all other public services — including schools, police, social care, prisons and housing — would at best only enjoy an inflation-linked rise after eight years of cuts.

Mr Hammond said he could start spending a £15bn fiscal “buffer” next year if a smooth Brexit is secured in the coming weeks, while a good deal would also lead to an upgrading of growth forecasts, freeing up more money.

But he said that if his fiscal plans were blown off course he was ready to hold an emergency Budget next spring to reset his economic course — a warning of the consequences of a chaotic “no deal” exit.

Basking in the largest sustained windfall from improved public finance forecasts since the Office for Budget Responsibility was created in 2010, the chancellor was able to meet the prime minister’s pledge to boost NHS spending and increase income tax thresholds, while keeping borrowing levels close to those forecast in March.

He also unveiled a range of revenue-raising measures, including a new “digital services tax” targeting the sales of Silicon Valley giants in the UK.

Higher growth

The OBR forecast a dip in growth this year followed by higher growth in the years ahead. But its big change was in borrowing, which was forecast to be £13bn lower this financial year than in its March forecast, rising to a £19bn improvement by 2022-23.

The unexpected strength of tax receipts will push the tax burden to its highest level in over 30 years, the fiscal watchdog’s figures suggested. But Robert Chote, chairman of the OBR, said that because the new NHS funding had swallowed up all of the chancellor’s windfall, the government would still miss its objective to balance its books by 2025.

“[Mr Hammond] has delivered the largest discretionary fiscal giveaway since the creation of the OBR,” Mr Chote said.

Lower borrowing still means that debt will decline as a share of national income from 2017-18 onwards, from 83.7 per cent this year to 74.1 per cent in 2023-24.

Extra money for welfare

The chancellor announced extra funds rising to £1.7bn a year by 2023-24 to help smooth the introduction of the controversial universal credit scheme that has been criticised by campaign groups for driving benefit claimants into penury.

Stretched local authorities will also get an additional £700m to fund social care services, while the Ministry of Defence will receive an additional £1bn by the end of 2019/20.

Although he scaled back previous government investment plans, capital spending would still grow by 30 per cent over the next five years, the chancellor said, as the government aimed to tackle Britain’s longstanding productivity problems with investment in “infrastructure, regions and skills”.

Mr Hammond also unveiled cuts to business rates for smaller high street shops, costing the Treasury around £500m a year for the next two years.

The chancellor delivered on a Conservative party manifesto pledge to increase the income tax-free personal allowance up to £12,500, and the higher rate threshold up to £50,000, from April next year. These tax thresholds would then increase in line with inflation after 2020.

Alcohol duty will be frozen, apart from on wine, where duty will increase at the same rate as the retail price index.

Private finance initiatives, controversial contracts through which companies provide the financing for public investment, would be scrapped, he said.

Revenue-raising measures

But tax increases offset tax cuts overall.

The new “digital services tax”, which is expected to raise £400m, will be levied on the UK revenues of platform companies such as Apple, Amazon, Facebook and Google, Mr Hammond announced. The tax will be introduced April 2020, unless there is an international agreement on the issue.

The chancellor announced a cut to the size of the apprenticeship levy — a payroll tax which companies can claim back for some kinds of training — for smaller businesses.