Home Finance UK finance minister says the era of austerity is 'finally coming to an end'

UK finance minister says the era of austerity is 'finally coming to an end'

10 min read

The U.K. Finance Minister Philip Hammond announced that the country is coming to the end of an era of austerity.

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Hammond was speaking in front of lawmakers at the government’s U.K. budget announcement, which is an annual statement about what taxes it plans to impose, as well as what it plans to spend public money on. It also provides an update on the state on the nation’s finances.

Hammond started his speech in Parliament Monday by saying he has a budget “for hard working families, the strivers, the grafters and the carers,” before claiming “the era of austerity is coming to an end.” It is the last U.K. budget to be announced before Britain departs the European Union on March 29, 2019.

The forecast for output growth in the U.K. (the change in gross domestic product) was also revised upwards by the Office for Budget Responsibility. The growth forecasts have now been increased to 1.6 percent in 2019, from a previous estimate of 1.3 percent in March. Hammond also revealed that forecasts for 2020 and 2021 are now higher at 1.4 percent, with 1.5 percent in 2022 and 1.6 percent in 2023.

“Taking into account all announcements since the Spring Statement, including measures I shall announce today, shows the deficit down from almost 10 percent under Labour (the opposition party) to less than 1.4 percent (of GDP) next year under this Conservative government and falling to just 0.8 percent by 2023-24,” Hammond added.

Hammond also claimed that borrowing this year is to be £11.65 billion ($15 billion) lower than forecast in his spring update.

In 2016-17, net borrowing in the U.K. was £39.4 billion and the total U.K. public sector net debt was £1,792.3 billion, equivalent to 85.2 percent of GDP.

After the claims of an improving economy, the U.K. finance minister outlined where he would allocate more funding.

Hammond increased the amount of cash to help the U.K. government prepare for Brexit by £500,000 for 2019-2020, taking the total figure to £2 billion.

To support business, Hammond raised the annual investment allowance, a tax incentive to encourage capital investment, to £1 million from the current level of £200,000. The lawmaker also announced an additional £1 billion to go to the Ministry of Defence to boost cyber capabilities as well as anti-submarine warfare capacity.

Other commitments include £160 million for counter terrorism, £420 million to tackle potholes, and £400 million for spending on schools.

Hammond added that smaller shops in England will see their business rates bill cut by a third. The minister claimed that would save around 90 percent of small shopowners around £8,000 a year.

Another £500 million has been announced for a housing infrastructure fund with the intention of building 650,000 homes. Stamp duty — a house purchase levy — will not be payable to first time buyers of shared ownership property worth up to £500,000.

Meanwhile, Universal Credit is the U.K.’s government’s contentious new scheme to wrap several working age benefits into one. It has received widespread criticism for leaving beneficiaries without income for six weeks and longer. Addressing the matter, Hammond said the implementation would be smoothed by an extra £1 billion as well as increased allowances adding up to £1.7 billion per year, over the next 5 years. The U.K. finance minister also proposed to increase the national living wage to £8.21 per hour from April 2019.

One eye-catching announcement was a plan to enforce a Digital Services Tax from April 2020. This tax will be paid by companies which are profitable and generate at least £500 million a year in global revenues.

“It will be carefully designed to ensure it is established tech giants — rather than our tech start-ups — that shoulder the burden of this new tax,” said Hammond, before adding that is expected to raise over £400 million a year.

Another tax announced was a new duty on the manufacture and import of those plastics with less than 30 percent of recycled content.

At the beginning of October, Prime Minister Theresa May told her Conservative Party Conference that the budget would also freeze the level of tax on fuel for the ninth year in a row. Hammond also confirmed that beer, spirits and cider would see no tax rises, although strong “white cider” and wine will see rises.

Air passenger duty for short-haul flights is also frozen but long-haul flights will rise in line with inflation.

On personal income taxes, Hammond has proposed that the tax-free allowance will now kick in at £12,500 while the higher rate of income tax threshold will increase to £50,000. Both of those measures come into play in April 2020.

The leader of the opposition Jeremy Corbyn rejected the claim that austerity was over, describing the budget as a “drop in the ocean for adult and child social” care.

On Universal Credit, the Labour leader said the new system was causing hardship and should be ended immediately.

Corbyn also highlighted a reduction in police numbers while crime figures were on the rise.

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