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29 October 2018

Budget 2018: Austerity continues as Philip Hammond gives a tax cut to higher earners

This was a budget targeted at rewarding and reassuring the top 15 per cent of earners. 

By Stephen Bush

Philip Hammond delivered a Budget that was long on spending announcements but low on actual cash. The Chancellor sprayed around spending commitments that sounded impressive – £200m there, £400m there – until you remember that, as far as government spending goes, these are tiny amounts.

Although the Chancellor held out the promise of more money at the next spending review, this was well short of Theresa May’s promise that austerity will end – a pledge that Hammond himself notably did not repeat.

There were, however, some big ticket spending items: the pre-announced expansion of cash into the NHS, and the injection of an extra £2.7bn into the troubled Universal Credit programme, with £1bn of that targeted on transitional protections for people moving from the old benefits system to the new, and the remainder spent on reversing the cuts planned by George Osborne.

Other than the £700m in spending announcements for Northern Ireland – not much in government spending terms, but a lot for a place the size of Northern Ireland – which were done with one eye on the ten DUP MPs the Conservatives must keep on side to remain in office, the big winners, and Hammond’s main target, were the United Kingdom’s top earners, with the promised cut in the higher rate tax for people earning £45,000 or over being brought forward. The 40p rate will now kick in at £50,000 and higher rate taxpayers will also benefit from the further increase in the taxable threshold. 

The winners from these tax cuts are overwhelmingly concentrated in the top 15 per cent of the pay distribution. But this group – professionals, school headteachers and department heads, lawyers, doctors and senior academics – were also the group that swung decisively away from the Conservative party in 2017. To the extent that this budget had a political focus it was on winning over people who are troubled by, but not directly affected by, deprivation, with the small spending increases announced across government largely targeted on eliminating visible signs of wear and tear on the public realm. Not least among these was potholes, a huge and noticeable consequence of the cuts to public spending for the vast majority of higher earners, who outside London largely commute and travel by car.

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These spending decisions give you a good idea of what the focus of Budgets future will be, provided Brexit doesn’t trigger an economic crisis: with largesse targeted on the well-paid, and small-bore amounts of money directed to dampen down the most gaping and obvious problems in the public realm.