Hammond Delivers Pothole Budget for the UK Economy

The £420 million for potholes that Philip Hammond, the Chancellor, announced at yesterday’s budget, was his best gag in the whole 71 minute budget statement to Parliament. The real jokes, by contrast, were painfully lame. But the pothole money is a neat metaphor for the UK economy, in that it is a patch up of the nation’s economic policy, meant to see the country through until next year’s spending review.

A perfect example is the extra £650 million for social care, which is to fill in the hole in this funding for this issue for the next twelve months, until it is sorted out permanently at some stage in the future. The government has promised a Green Paper on funding social care but it has yet to materialise, with an expected date of launch before the end of this year. Last year’s hole filler was to raise council tax, but this can’t really be repeated year on year. Big decisions are being put off.

There was some welcome news in extra, mainly future, funding for the NHS and the ending of new Private Finance Initiative deals for public sector contracts, but that’s about it.

Other fiscal measures in the budget only undo the damage caused by the government’s austerity agenda, like the extra funding for Universal Credit, roughly the amount cut from the scheme by George Osborne when he was Chancellor. Many Tory MPs had pressed for this, so Hammond was keeping them happy, whilst having a dig at Osborne.  

An increase in income tax personal allowances, worth only about £130 per year to basic rate taxpayers, probably less than £10 per month once National Insurance contributions are factored in. Higher rate payers will gain around £860 per year, less National Insurance contributions. More money for those who don’t really need it, and less for those who do, it is typical of this Tory government.

In total, 84% of the income tax cuts announced on Monday will go to the top half of the income distribution next year, rising to 89% by the end of the parliament.

But what of the end of austerity, that the Prime Minister, Theresa May announced at Tory party conference? Well, the budget falls way short of this. Funding for government departments will at best flat line, outside of health, so cuts to public services will continue largely unabated throughout 2019-20.

What Hammond did say was that ‘the end of austerity is in sight,’ but only if you have a telescope, as he said this will not be until 2024. Not even a case of jam tomorrow, but jam in five years time, perhaps, if Brexit doesn’t cause the UK economy to go into recession. That would mean fourteen years of austerity inflicted by the Coalition and full blown Tory governments. By which time public services if they exists at all will be basic and geographically variable.

So, austerity is set to continue, with only a slight softening of the impacts generally. The Tories know that the public is getting very weary of the austerity agenda, so their rhetoric hints at ending it, but their actions say otherwise. This is because austerity always was an ideological choice for the Tories, to cut the public realm and reduce the size of state to only minimum proportions.

There will need to be tax raised in the future to pay for adult social care, one way or another with a rising ageing population, but outside of health and care, all other services will continue to be cut, including a further £1.3 billion from local authority funding. Public sector employees will continue to get below inflation pay rises whereas high earners will continue to reward themselves often for failure and pay less tax on their increased incomes.

Of course, we may well be shut of this government before 2024. There needs to be a general election by 2022 at the latest, and the way things are going it might come a good deal earlier than that. It can’t come soon enough.