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30 October 2018

Labour says the Budget shows it sets the political agenda. But the reality is more complex

Philip Hammond is trying to raise the question of which party would best bring about economic change. And the answer isn’t clear.

By Stephen Bush

Mission accomplished? Philip Hammond will feel content this morning thanks to a slew of good headlines and a positive reception from Conservative MPs to his budget. Thanks to that and another generous package of money for Northern Ireland, the Chancellor can feel confident that the Budget should pass, and there is nothing that I can see with the potential to unravel in the way that the proposed change to National Insurance contributions or George Osborne’s tax credit cuts did.

Hammond opted to use unexpectedly high tax revenues to fund Theresa May’s NHS pledge, to cancel some of Osborne’s planned cuts to Universal Credit, and to bring forward increases in the taxable threshold and the 40p rate, which increases from £45,000 to £50,000. Has “austerity ended” after all?

Look closer and the pattern is more complicated. Taken together, it means that the big winners are Britain’s highest earners, with 84 per cent of the gains concentrated in the top half of the income distribution and by the end of the parliament, almost half (45 per cent) of the gains will accrue solely to those in the top 20 per cent of the income distribution. The changes also disproportionately hit women, according to new research by Yvette Cooper, with women shouldering 87 per cent of the burden of tax and benefit changes, as women (particularly lone parents) are more likely to be negatively affected by the Universal Credit rollout while men are more likely to benefit from these new tax cuts. Outside the NHS, spending is flat in real terms, meaning that most departments will still have to plan for and absorb significant reductions in what they can do. But it’s difficult for Labour to make hay on that subject, as it backed these tax cuts in its 2017 manifesto and John McDonnell this morning reiterated his party’s support for these measures.

This is a budget targeted squarely at higher earners, not just in terms of the tax cut received but also as far as the limited increase in public spending, which is directed partly at the services higher earners use (such as the extra funding for road repair, one of the most visible signs of the neglect of the public realm)  but equally importantly at the things that everyone notices. (The one glaring omission was more money to tackle rough sleeping.)

Labour will say, understandably, that this is a budget that shows that it is setting the terms of political debate. That’s partly true. But the other thing it shows is a Conservative Party that is rediscovering the art of servicing its electoral coalition at the expense of everyone else. This involves hefty tax cuts for the higher earners that defected to Labour in 2017, the reversal of Universal Credit cuts for the lower income voters it picked up in 2017, and an attempt at changing the political question from one about whether the present economic model needs to change (an argument Labour wins) to one over which party is the most competent and effective manager of a change in the economic model: an argument whose outcome is somewhat more uncertain.

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