Autumn Budget: the end of Austerity?
- Philip Hammond delivered the final autumn budget before the UK is expected to leave the European Union.
- The chancellor announced the personal allowance threshold will rise from £11,850 to £12,500 and the higher income bracket will also rise from £46,350 to £50,000.
- Although the debt to GDP ratio is expected to fall from a high of 85.2%, the figure remains comparatively high when looking at pre-financial crisis figures.
- UK-US trade relations could take a hit as the government announced a new digital services tax plan targeting technology firms.
The decade-old debate on austerity was also in play, with Philip Hammond claiming that “the era of austerity is finally coming to an end”.
Early afternoon on 29 October, it was again time for the yearly autumn budget, one expected to be intensely scrutinised given it is the last before the UK exits the European Union. It has been a tumultuous time for the Conservative party, given the tension emanating from the Brexit negotiations and the still looming possibility of a no-deal. There was a therefore a need for stability.
The big boon that came in the budget, which was conveniently left to round up the speech, was the timeline change of the proposed personal allowance threshold – moved forward to April 2019 from 2020. The initial income threshold at which you do not pay tax will rise from £11,850 to £12,500, and the higher income bracket rate cut off will rise from £46,350 to £50,000. This is estimated to be a £130 yearly tax cut for 32m people. In the same vein, a revision of the national living wage to £8.21, a 4.9% raise, will put £690 annually into peoples pockets. So nothing to scoff at.
The decade old debate on austerity was also in play, with Philip Hammond claiming that “the era of austerity is finally coming to an end”, with Jeremy Corbyn quick to dismiss this. Hammond argues this is due to the mending of the budget deficit and the fall of the debt to GDP ratio (debt as a percentage of GDP), allowing future spending to take place. The chancellor forecasts borrowing for 2018-19 to be £11.6bn lower than previously expected in the spring, equivalent to a 1.2% of GDP fall. Coupled with the estimate that the total borrowing amount will fall from £31.8bn in 2019-20 to £19.8bn in 2023-24, this means the government will reach its fiscal targets 3 years early, with borrowing falling to just 1.3% of GDP in 2021.
This tumbling burden is fuelling the fall in the debt to GDP ratio, with it expected to be 83.7% this year, a fall from a high of 85.2%, and then continuing the downward trend to an optimistic 74.1% in 2023. A pledge that his predecessor George Osborne was never able to fulfil. Although, when compared to figures before the financial crisis of 2008, the debt to GDP ratio still remains twice as high.
The most interesting point made by the Chancellor, however, came in a newly styled Digital Services Tax, which plans to take aim at tech firms such as social media platforms, internet marketplaces, and search engines. The specific nature of the tax would be that firms with revenues over £500m – who are profitable – will be levied at 2% on the revenues attributed to business models linked to UK-based users. The exact scoping, however, is still to be confirmed. The government hopes a global agreement for a tax on digital turnover will be introduced by the time the tax comes into play in 2020, rather than forcing the riskier option of the UK standing alone on the issue. The OECD has been in the process of creating a landmark agreement on the topic but Hammond had previously hinted it was “painfully slow” and “we cannot simply talk forever”. It is unclear if the global agreement will be announced soon.
However, the US government is not pleased with the latest measures to claim more tax from multi-national tech giants. It believes the tax will undermine the competitiveness of global markets and is concerned by the efforts to develop a similar tax in other countries like Australia and Colombia. As a result, commentators such as Rufus Yerxa, president of the National Foreign Trade Council, have stated that the digital services tax could “complicate the United Kingdom’s push for deeper US-UK trade relations”.
Hammond’s budget was filled with policies designed to show that the government is stabilising and supporting economic development. But excluding the freeze on alcohol duties for beer, cider and spirits, the budget failed to include much of substance for students.The one policy that might light students’ hearts, however, was the £420m funding stimulus for potholes. After all, it is the small things that bring happiness in life.
Written by Jack Mcilwane. Edited by Tanya Kekic & Abdi Buwe.
Warwick Congress Blog
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