Hammond puts Britain in the fast lane to recovery

Spending extra NHS funds wisely will be a challenge
Last week’s Budget pleased nobody. But in a few years’ time we may look back on it as the point when the clouds started to lift, says Max King.

Budgets that are universally acclaimed the morning after soon unravel. But those that are widely criticised afterwards stand the test of time. On that basis alone, Philip Hammond’s offering last week, widely greeted with scepticism, deserves a second look. The spendthrifts complained it didn’t represent “the end of austerity” as only health spending was increased significantly in real terms. The puritans noted the national debt as a percentage of GDP wasn’t being trimmed fast enough. Both agreed that, with Brexit approaching, the Budget was just a stop-gap until Armageddon struck or nirvana unfolded.
In truth, Hammond did what he had to do. Raising both the standard and higher-rate income-tax thresholds was a Conservative commitment in its 2017 manifesto. Increasing NHS spending by £27.6bn over five years (22% in nominal terms, perhaps 10% in real terms, taking the annual real increase to 3.4%) was unavoidable, though spending the extra money wisely will, as always with the NHS, be a challenge.
Universal credit is crucial
The extra £2.7bn to ease the introduction of universal credit, which many expected to be scrapped, was more important than it seemed. The relentless rise of entitlement spending has resulted in both a historically high level of overall taxation and a squeeze on departmental expenditure such as health, education and defence. The rise in welfare spending is due largely to the lack of incentive in the current system for part-time workers to work longer hours, given the loss of benefit payments that ensues. The introduction of universal credit is crucial to restoring that incentive. But the previous chancellor made the mistake of
trying to combine structural reform with short-term savings in welfare costs. Hammond, rightly, takes a longer-term view – spend now to save later.
Elsewhere, spending increases were modest. The national living wage was increased by nearly 5%, benefiting those who gain little from the rise in tax thresholds. Balancing the government’s books may have been postponed, yet again, but the deficit this year at 1.2% of GDP is modest and debt as a percentage of GDP will fall steadily.

Leave a Reply

Your email address will not be published. Required fields are marked *