Budget 2018: Fiscal firepower
In an effort to avoid pun-worthy headlines on Halloween, the Treasury has decided to move the budget to a Monday for the first time in living memory. But what else is the Chancellor doing to avoid another pasty-sized furore?
Despite being Chancellor during the largest tax burden in recent history, Phillip Hammond retains that he is a ‘low tax tory’. He prides himself on his bland fiscal responsibility, maintaining the status quo. ‘Box office Phil’ lives up to his name. However, much of what he says tends to be true. Lower taxes have led to higher tax revenue and a disorderly Brexit will kill off any economic boom in the offing. Hammond has pledged ‘real change’, potentially abandoning his grey image. The problem for Hammond is political rhetoric from May and Boris has trapped him between a rock and a hard place.
The end of Austerity is nigh, proclaimed righteous Tories. Just don’t tell them they have done this joke before. With Brexit looming and lower than expected economic growth, the Chancellor has few options. Add this to his previous pledge to pump £20 billion into the NHS, tax rises are surely on the cards. An alternative could be to spend part of the £15.4 billion ‘buffer fund’ marked for Brexit-related shock relief. This would look like poor financial planning, like putting money away for a rainy day only to use it the minute Nimbus clouds start to form. Hammond has responded claiming this ‘buffer’ has given him ‘fiscal firepower’. Brace yourselves for acclamations of new taxation rules ‘adjustments’, in reality an obscured way of naming a tax rise.
What would this look like in reality? Hammond has declared war on the ‘fake’ unemployed. These are people who set up companies in order to take on new work, at a lower tax rate. This would mean forcing such workers to pay the same National Insurance (NI) contributions as full-time employees. Unsurprisingly, this has been met with severe criticism from self-employed associations. They point out, rightly, that the self-employed charge higher prices compared to larger firms and thus any tax gain is wiped out and more. The Tories previous pledge to keep NI at a current level was universally popular. However, with the fiscal pressure of Brexit and Labour’s spend all manifesto, it is unsurprising to find ourselves here today. It is sometimes said that politicians follow the people like sheep, today the Tory party follows them leftward.
This may be harsh. Increasing NHS spending in the face of an ageing population is what any responsible government should do. Combined with the fact that this year’s borrowing stats have been relatively good, there is an argument that the government’s policies are working. Theresa May has suggested that the lower levels of borrowing could pay for the increase in NHS spending that has been promised. This seems unlikely. Hammond will almost certainly have to raise taxes but only to a moderate level.
One proposed option would be to freeze tax bracket rises, essentially keeping the amount of workers paying tax at the same level. Another has been a rise in beer duty. This would lead to the closing of many of the UK’s finest establishments, at a higher rate than is already occurring. Going anywhere near fuel duty would be political suicide as the consumer fuel price lobby includes many influential Tory MP’s like Robert Halforn. This demonstrates the largest problem for Hammond: Politics.
With no real majority and a war of words being fought with their DUP supporters over Brexit, any substantial tax rises will face parliamentary opposition. Harold Macmillan was reputed to have said that events are what throw a government off course. A voted down budget combined with failing Brexit negotiations may scare the Chancellor to abandoning his pledge for ‘real change’. Box-office Phil may still be alive and well.
Fergus Cameron Watt is a 2nd year student studying Economics and Politics at the University of Exeter.
