Changes to the UK’s Budget calendar meant that Chancellor of the Exchequer, the Rt Hon Philip Hammond MP, delivered the little red box to the House of Commons in autumn for the first time since 1997.
Against a backdrop of cabinet resignations, Brexit turmoil and Westminster scandals, ‘box office Phil’ was tasked with producing a game-changing Budget to restore faith in the Government and secure his own future as Chancellor. But without a parliamentary majority to push through any controversial measures, Mr Hammond faced a difficult conundrum of meeting the demands of his party and the Conservative manifesto, while not upsetting too many backbenchers. He sought a “balanced approach” to maintain fiscal responsibility alongside major investment in housing, infrastructure and skills, while also putting a specific emphasis on the “technological revolution”.
Initial reactions were broadly positive with the CBI describing it as a “good budget in tough times”. However, housebuilders’ share prices fell and there were also early concerns raised over the stamp duty changes bumping up house prices and capital gains changes discouraging investment in the UK.
Before a predictable quip around cough sweets, the Chancellor began by underlining the Government’s focus on securing a “deep and special partnership” with the EU, based on “free and frictionless trade”, while also announcing that the Government was setting aside an extra £3 billion for Brexit preparations. That was it on Brexit matters as the Chancellor stated the Budget was about “much more than Brexit”.
With a nod to the Rt Hon Michael Gove MP, the Chancellor focused first on the “bit with the long economicky words”, outlining the Office for Budget Responsibility’s (OBR) outlook for the UK and announcing that growth has been downgraded to 1.5 per cent for 2017 – down from the 2 per cent predicted in March.
Growth estimates for the next five years were similarly reduced, falling to 1.3 per cent by 2020 before picking back up to 1.6 per cent by 2022. Following the Chancellor’s blunder on Sunday when he suggested “there are no unemployed people”, he noted in today’s speech that there were in fact 1.4 million of them, but celebrated the OBR’s forecast that a further 600,000 new jobs will be created by 2022.
Housing and development
Much of the speculation in recent weeks has centred on housing and, after the Chancellor proclaimed housing as his “number one priority”, it was no surprise that the Budget was heavy on housing policy. He committed a total of £44 billion in Government support, including capital funding, loan guarantees and other investment to help achieve the housebuilding target of 300,000 new homes per year by 2020. Last week, the Government announced that it would reclassify housing associations as private companies to encourage investment in housebuilding, and today’s Budget included a number of other housing initiatives, focusing primarily on the difficulties young people have in getting on the property ladder.
Calls to cut Stamp Duty were widespread in advance of the Budget, and Mr Hammond didn’t disappoint, announcing he would immediately abolish Stamp Duty for first-time buyers on homes up to £300,000, and on the first £300,000 for properties up to £500,000. The Chancellor noted that this would benefit 95 per cent of all first-time buyers and ensure that 80 per cent of first-time buyers pay no Stamp Duty.
Highlighting a “significant gap” between the number of planning permissions granted and homes built, he announced the Government would launch an “urgent review” to assess this disparity, chaired by the Rt Hon Oliver Letwin MP, which will report back to Parliament in spring.
However, he ruled out changes to Green Belt protection, instead committing to make best use of urban land by building “high density homes” in city centres and around transport hubs.
Other initiatives that make up the £44 billion investment in housing include the Housing Infrastructure Fund, Land Assembly Fund, the Oxfordshire Housing Deal, a small sites fund, and investment for SME housebuilders. Five new garden towns will be built through New Town Development Corporations, while a further £2 billion investment was announced for affordable housing initiatives. To enable the increase in housebuilding, £34 million will be invested in developing construction skills across the UK. The Chancellor also announced that the Homes and Communities Agency will be renamed Homes England with renewed authority to intervene more actively in the land market.
Industry, regions and devolution
Determined to get the “UK firing on all cylinders”, Mr Hammond outlined plans for the new £1.7 billion Transforming Cities Fund to boost regional transport networks. While half of the figure will be shared by the six areas with elected metro mayors, the remainder will be open to applications from other cities in England. The Chancellor also announced a second devolution deal with West Midlands Mayor Andy Street, a new devolution deal with North of the Tyne and a consultation on a Belfast city deal, while allocating an extra £2 billion funding for Scotland, £1.2 billion extra for Wales and £660 million extra for Northern Ireland.
The Government also committed £300 million investment in HS2 infrastructure to accommodate future Northern Powerhouse and Midlands Engine rail improvements.
The National Productivity Investment Fund has been extended by a further year to 2022 and given an extra £8 billion, taking the total investment to £31 billion. A further £2.3 billion was allocated to investment in Research and Development and the R&D tax credit was increased to 12 per cent.
Although not stated in the Chancellor’s speech, the Budget also included a range of other local growth initiatives including a new link road in Cornwall and a new bridge in Great Yarmouth.
Arguing that the UK was at the forefront of the “technical revolution”, Mr Hammond put a special emphasis on technology in his speech.
He outlined the Government’s aim to have driverless cars on the road in the UK by 2021, but prioritised electric cars with £400 million to be invested in electric car charge points. Some £75 million was earmarked for a new Centre for Data Ethics and Innovation to enable and ensure safe, ethical and ground-breaking innovation in artificial intelligence. To keep up with “rapid technological change”, the Chancellor also committed to developing necessary skills and training professionals. This comprised £84 million for an additional 8,000 fully-qualified computer science teachers, supported by a new National Centre for Computing and a retraining partnership between the TUC, CBI and the Government, with priority sectors including construction.
On the Grenfell Tower tragedy, Mr Hammond announced £28 million of funding for the London Borough of Kensington and Chelsea to provide mental health support for victims, a new community space and for regeneration of the surrounding area. He called for all local authorities and housing associations to carry out the necessary fire safety works as soon as possible and offered support to any of those that are faced with financial constraints to do so.
Other major announcements
Other policy announcements included an extra £10 billion for frontline NHS services by 2022, an increase in the National Living Wage by 4.4 per cent to £7.83 an hour, a rise in tax-free personal allowance on income tax to £11,850 and an increase of the higher-rate threshold to £46,350. The Chancellor announced a pilot scheme in London for 100 per cent business rates retention, a retention of the VAT threshold for small businesses at £85,000 and a new Transferable Tax History for North Sea Oil.
On fuel, vehicle excise duty for diesel cars that do not meet latest standards will rise by one band and the fuel duty rise scheduled for April has been scrapped. A new £220m Clean Air Fund has been announced and the Chancellor committed to investigating how the tax system could charge on single-use plastic items to reduce waste.
On Universal Credit, it was announced that new claimants in receipt of housing benefit would continue to receive it for two weeks and the seven-day waiting period would be removed. The Chancellor also launched a 26-30 railcard and committed to tackling the problem of graduates overpaying their student loans.