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When Chancellor Philip Hammond stepped up to the despatch box, he would have been acutely aware of the pressure he was under.
Some 24 hours before the Chancellor was due to open his famous red box, the Office for National Statistics (ONS) confirmed a wider deficit than anticipated for October.
Ahead of the Budget, business leaders had urged Mr Hammond to get to grips with Brexit headwinds and the UK’s productivity problem, while his party’s own MPs were demanding action on issues such as housing and social care – which many believed had played a major part in the shock loss of the Government’s majority in June.
There was personal pressure too. Some eight months ago, the Chancellor’s previous Budget unravelled at alarming speed (unpopular plans to increase National Insurance contributions for some self-employed workers were dropped within seven days). He could ill afford another flagship policy disintegrating.
All things considered, Mr Hammond had the difficult task of delivering a financial statement which was both radical enough to reset the political agenda and robust enough to avoid a repeat of the spring’s hasty u-turn. Could the Chancellor – whose fondness for figures has earned him the nickname “Spreadsheet Phil” – deliver?
- Economic overview
- Business and enterprise
- Transport and infrastructure
- Personal tax
- Public spending
- Tax evasion, avoidance and aggressive tax planning
Opening his address to MPs, Mr Hammond argued that the UK economy continues to “confound those who talk it down” and said that he was determined to invest in technological advances and seize the opportunities on offer.
He acknowledged that ongoing negotiations with the EU were at a crucial stage and with this in mind he would put aside an additional £3billion for Brexit preparations over the course of the next two years. He assured the House that the Treasury was drawing up plans for every possible outcome.
Outlining forecasts by the Office for Budget Responsibility (OBR), Mr Hammond said that the organisation was predicting that another 600,000 people would be in work by the 2020s.
Worryingly, the nation’s productivity has not improved and the predictions for growth have been cut substantially. The OBR now projects growth of 1.5 per cent this year (downgraded from two per cent in March). The forecast for next year is 1.4 per cent, and 1.3 per cent for both 2019 and 2020.
There was better news on borrowing, with Mr Hammond confirming that the forecast for this year is £49.9billion (£8.4billion less than had been projected in the spring).
And as regards the deficit, he said that the OBR figures suggested that the Government was on track to meet its target of reducing the deficit to below two per cent of GDP by 2020-21.
Ahead of the speech there had been no small amount of speculation that the VAT threshold for businesses was to be lowered.
But the Chancellor confirmed that the registration threshold will in fact remain at its current level (£85,000) for the next two years, shying away from a contentious change.
Mr Hammond did hint that he would be considering some form of reform and said he would hold a consultation as to whether the system could be altered to “better incentivise growth”.
In relation to business rates, Mr Hammond said he had listened to concerns from business leaders. With this in mind, he has decided to bring forward the switch from the Retail Price Index (RPI) to the Consumer Prices Index (CPI) by two years. The change will now take effect in April 2018 and is expected to be worth £2.3billion to businesses over the next five years. In addition, the discount for pubs (rateable value less than £100,000) is to be extended to March 2019.
In another boost for businesses, Mr Hammond announced that he would be allocating an additional £2.3billion for investment in research and development (R&D). The main R&D tax credit will be increased to 12 per cent.
These measures were described as “the first strides towards the ambition of our industrial strategy to drive up R&D investment across the economy to 2.4 per cent of GDP.”
Amid uncertainty over the impact of Brexit, the Chancellor also confirmed that the Government would be prepared to replace money from the European Investment Fund if necessary.
Mr Hammond said the Government was committed to supporting electric vehicles. Among the measures announced by the Chancellor were a £400million charging infrastructure fund.
As far as diesel cars were concerned, the Chancellor confirmed that vehicle excise duty for new vehicles that don’t meet the latest standards will increase from April 2018. The money raised will be invested in a £220million clean air fund.
£30million will be made available to enhance digital connectivity on the trans-Pennine route and councils will be able to stake a claim to £1billion for high-investment projects.
A new rail card for commuters aged 26 to 30 will enable around 4.5million travellers to get a third off rail fares.
To cheers from his own benches, Mr Hammond confirmed that Stamp Duty would immediately be abolished for first-time buyers for homes worth up to £300,000 (and on the first £300,000 of properties up to £500,000). There are hopes this will stimulate a slowing property market.
There was good news for the majority of air passengers, with the announcement that from April there would be a freeze on short-haul air passenger duty and long-haul duty for those in economy. The measures will be funded by increasing taxes on private jets.
The threshold for the basic rate of income tax will rise to £11,850 in April 2018, with the higher rate threshold to climb to £46,350.
An increase to the National Living Wage, set to take effect in April, was also confirmed. It will rise from £7.50 an hour to £7.83.
Duties on beer, wine, cider and spirits will be frozen, although tobacco tax will continue to rise at inflation plus two per cent.
More money is to be made available to the devolved administrations (£2billion for Scotland, £1.2billion for Wales and £650million for Northern Ireland). As had been trailed beforehand it was confirmed that both Police Scotland and the Scottish Fire Service would be made exempt from VAT going forward.
Facing increasing demands to address the growing strain on the health service, Mr Hammond outlined plans for an extra £10billion in capital investment over the course of this Parliament. There was also a commitment to make additional money available to improve pay levels for NHS workers.
The introduction of Universal Credit has come in for considerable criticism in recent weeks, with many opposition politicians urging the Government to pause roll-out of the changes.
Mr Hammond acknowledged that many Britons were facing a squeeze on their finances and, in an effort to address the controversy, confirmed that £1.5billion would be spent on efforts to make the system more generous.
The Stamp Duty announcement has stolen the headlines, but the Chancellor announced a number of measures apparently designed to show he was taking problems facing the property market seriously.
The Chancellor admitted that young people were concerned about their prospects. While he said there was no “magic bullet” to fixing some of the problems, Mr Hammond gave a commitment that £44billion would be made available over the next five years to address some of the major problems.
It was also announced that councils will be given powers to charge a 100 per cent premium on council tax on empty properties. This is something which a number of local authorities have been lobbying for.
Hard on the heels of the Paradise Papers controversy, the Chancellor said that HM Revenue & Customs (HMRC) would redouble its efforts to tackle offshore tax avoidance. This strategy is calculated to raise £200million a year.
Ahead of any Budget, the media often speculate about whether the Chancellor will pull “a rabbit from the hat”; announcing an audacious policy decided to win favour with voters. The Stamp Duty changes certainly fit the bill and are likely to dominate the headlines in the days ahead.
As far as businesses are concerned, there will no doubt be relief that the changes to the VAT threshold which had been rumoured in advance of the speech failed to materialise.
Critics may say that the Budget otherwise erred on the side of caution, with an emphasis on prudence over particularly radical announcements.
And the Treasury will no doubt be mindful that the OBR forecasts, which suggest the economy is rather weaker than was thought back in March, could mean that challenging times lie ahead.