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29 October 2018

Budget 2018: Hammond’s raid on Labour’s manifesto showed how debate has moved leftwards

The Chancellor promised higher public spending, borrowing for investment and an end to PFI. 

By George Eaton

It fell to Philip Hammond, a fiscal conservative, to announce that “the era of austerity is finally coming to an end”. The Chancellor had a spending commitment to justify his boast: departmental spending will rise by an annual average of 1.2 per cent. But compared to pre-crash norms – and shared among a growing and ageing population – this remains austere indeed. After the extra spending allocated to the NHS (£23.4bn by 2023), unprotected departments will still face further cuts.

Though Hammond strived to resonate optimism, the figures told of permanent stagnation. Economic growth is forecast by the Office for Budget Responsibility to fall below 2 per cent in every forecast year: 1.6 per cent (2019), 1.4 per cent (2020), 1.4 per cent (2021), 1.5 per cent (2022) and 1.6 per cent (2023). And this assuming the UK avoids the recession that historic trends suggest is inevitable. 

Faced with a hung parliament – that prohibits new austerity measures – and the threat of a Labour victory at the next election, Hammond borrowed liberally from the the opposition’s manifesto. Rather than using improved revenue to further reduce the deficit, the Chancellor chose to devote almost the entirety of the £20bn windfall to public services: the NHS, defence, schools, Universal Credit social care. The previous ambition of an overall budget surplus has been entirely abandoned. Hammond, as Labour has long advocated, is borrowing to invest. Under pressure from Tory backbenchers and Labour, the Chancellor also allocated £1.7bn to Universal Credit, undoing just over half of the cuts imposed by George Osborne (£3bn) and ensuring that the system is more generous than the tax credits it replaces. 

Having already mimicked the opposition’s fiscal stance, the Chancellor further promised an end to the Private Finance Initiative. No future projects, he pledged, would be funded through the exorbitant contracts. Though Jeremy Corbyn and John McDonnell (who opposed PFI from 1997 onwards) would go further and bring the most wasteful contracts back in-house, the ideological trajectory is clear. 

Rather than espousing the traditional Thatcherite aim of shrinking the state, the Conservatives have acknowledged that the public favour a social democratic approach. Polls have repeatedly shown that voters are willing to pay higher taxes to sustain the NHS (“the closest thing the English people have to a religion” in former chancellor Nigel Lawson’s imperishable description) and other public services. On the right, few now talk of cutting the top rate of income tax from 45p to 40p, still less of reducing the state to just 35 per cent of GDP (as was Osborne’s ambition).

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Though they remain in office, the Tories’ hold on power is weakening. Far from winning the battle of ideas, Hammond’s Budget showed that the Conservatives are, in important respects, already conceding defeat.