Austerity, by any other name...

Philip Hammond faced an enormous amount of pressure going into his budget, and not just because the Brexit-shaped economic void facing the country meant he could have no idea how big his public purse will be in a few short months’ time.

His boss, the Prime Minister, had also seemingly directed the Chancellor to deliver the budget that would end austerity politics.

In her conference speech, Theresa May said: “A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off.”

But the image of Hammond splashing the cash seemed unlikely at best. After all, this is the man about whom George Osborne reportedly told his friends: “If you think I’m dry on the economy, you should see this guy.”

As someone who values fiscal prudence anyway, Hammond has rarely used the word ‘austerity’. But he emerged from Number 11 with his red case last week knowing that any announcement of a cut in spending would be characterised as exactly that. And he used the word ‘austerity’ a lot.

However, Hammond opened his budget by slightly changing the tense of May’s promise.

“The era of austerity is finally coming to an end,” he told MPs. Not quite over yet, then.

This was a budget for the “strivers, grafters and carers”, Hammond said, promising a rise to the personal tax allowance and a rise in individual Universal Credit awards.

But there were no rabbit-from-hat revelations or reversals of previously announced cuts to department budgets. 

“Austerity is coming to an end, but discipline will remain,” he concluded. 

Quite a confusing statement, since Hammond probably used discipline to describe austerity anyway.

But did his budget truly bring austerity to an end? Well, it all depends on how you define it. 

Certainly OBR figures suggest the pledge to balance the public books by the middle of the next decade has been all but abandoned.

In terms of deciding what to do with any extra money coming to the Exchequer, there was a definite shift in tone. Hammond decided to spend it, rather than use it to pay off debt, pledging higher borrowing despite slow growth.

There were a few substantial pledges of cash. There was £1bn to give the unemployment section of Universal Credit a boost, another £1bn for the new replacement nuclear weapons system and some money for English councils for potholes and social care.

But the biggest uplift is NHS funding in England. In this one, like the pledge to end austerity, Theresa May had tied his hands, announcing additional £20bn funding in June. Hammond even joked about it in his speech. 

“You will know better than most that every chancellor likes to have a rabbit or two in his hat as he approaches a budget, but this year, some of my star bunnies appear to have escaped a little early,” he said.

“In June, my right honourable friend the Prime Minister announced the single largest cash commitment to our public services ever made by a peacetime government.”

So in terms of increasing departmental spending and easing tight fiscal rules on borrowing, one could say that austerity – in terms of political language – is coming to an end. Politically, this was unlike a regular Conservative budget.

In a huge concession to Labour’s left-wing leadership and a blow for the party’s Blairite moderates, Hammond took apart the arguments for Private Finance Initiatives.

“In financing public infrastructure I remain committed to the use of public-private partnership where it delivers value for the taxpayer and genuinely transfers risk to the private sector. But there is compelling evidence that the Private Finance Initiative does neither,” he said.

“We will honour existing contracts, but the days of the public sector being a pushover must end.”

The words could have come from a Labour chancellor.

by Matt Foster

Philip Hammond announces 'austerity coming to an end' as he unveils multi-billion pound spending budget

Austerity had a purpose, though, and the question of it being over could be down to whether it achieved its lofty aim of cutting spending hard to reduce the deficit until the country experienced growth.

To do this, the state had to be shrunk, something opponents claimed was a political choice rather than one motivated by economics.

The original aim was to cut the day-to-day budget deficit, but borrowing continued to rise throughout the Cameron/Osborne years, it just wasn’t being spent on public services. 
Indeed, Hammond admitted national debt peaked in 2016/17 at 85.2 per cent of GDP, the year he became chancellor. 

Hammond may be right in his claim that the structural deficit target has been met “three years early”, but his spending means the timescale for eliminating the real deficit will be unlikely to be achieved until closer to 2030.

Those spending pledges might be misleading, however. Outwith the NHS funding increase, other government departments still face cuts over the next few years to meet long-term targets set some time ago. 

For many people, austerity has come to mean harder times for the most disadvantaged and marginalised people in society.

Record numbers of homeless people is one of the most visible symptoms of this, with the number of street sleepers rising 169 per cent since 2010 across the UK.

Demand for emergency food parcels increased by 13 per cent in the last year.

Welfare reforms have hit women and the disabled hardest, and despite the £1bn fund to ease transitions to Universal Credit, the cap on the overall welfare budget will remain.
For these people, it may take a little longer to believe that austerity is over.

John Dickie, Director of the Child Poverty Action Group (CPAG) in Scotland, said family benefits would need to be looked at in the round, including ending the freeze on child benefit, before the end of austerity would be felt.

“There is no question that the work allowance increase is good news for families receiving Universal Credit but a bigger salvage operation is still needed for the benefit. This is crunch time for Universal Credit,” he said.

There were a number of points for Scotland in the budget, including a freeze on spirits duty, to which the Chancellor credited Scottish Conservative MPs for lobbying on behalf of Scotch whisky.
There were mentions of supporting oil and gas exploration and a Tay Cities Deal, as well as £10m for fisheries technology.

Scotland’s block grant will be increased by £950m, growing to £32bn by 2020.

Scotland Secretary David Mundell said: “The Chancellor’s decisions mean there will be an extra £1 billion to invest in public services in Scotland. I urge the Scottish Government to use this extra money to support the NHS in Scotland, fix the roads, boost Scotland’s economy and reinvigorate Scotland’s high streets.”

But the Scottish Government said the money represents a real-terms cut of £2bn since 2010.

What’s more, the lifting of the personal tax allowance will have an impact on Scottish finances too. Unlike the tax bands, the Scottish Government has no powers over the personal allowance, and with many people in Scotland on low incomes, thousands could be lifted out of the tax system altogether.

Scotland’s Finance Secretary Derek Mackay, therefore, faces some tough choices on tax in his own budget next month. The new personal allowance of £12,500 eats into Mackay’s Scottish starter rate of 19 per cent on earnings between £11,850 and £13,850. He will need to adjust it.

The higher tax rate of 41 per cent in Scotland already starts at a lower amount, £43,431, but with Hammond raising the threshold for the rest of the UK’s higher rate of 40 per cent to £50,000, the gulf between the two tax systems looks set to grow.

Scotland has relatively few higher rate taxpayers, but the bigger divergence may encourage them to relocate south of the border.

Mackay said: “There was little in this budget to boost our public services. 

“The Scottish Government has already set out our plans to support the NHS in the years to come and the funding we have received as a result of health spending in England will go to our NHS in Scotland – but so far the UK Government has fallen at least £50 million short of what was promised only four months ago.  

“The reality of today’s budget is that Scotland continues to be hit by UK austerity and the decision to leave the EU.”

Indeed, Brexit was a mostly overlooked caveat to Hammond’s spending pledges.

“When our EU negotiations deliver a deal, as I am confident they will, I expect that the ‘deal dividend’ will allow us to provide further funding for the Spending Review,” he told MPs.

Even Theresa May’s conference speech that put Hammond in this place in the first place tied a positive Brexit outcome to bringing austerity to an end.

“When we’ve secured a good Brexit deal for Britain, at the Spending Review next year ... support for public services will go up.”

As the prospects of a chaotic no-deal Brexit approaches, austerity could yet emerge from the grave in spring, wearing stilts, however you want to define it.