Budget 2018: What can we expect?

Yes, it’s that time of the year again. It’s nearly the Budget and speculation is rife about what Philip Hammond has to offer when virtually all political energy seems to be sucked into Brexit. The two aren’t separate though, because support for the Budget in the Commons is already being used as a Brexit bargaining chip by Tory rebels and the DUP. Not to mention big spending commitments and fiscal uncertainty thrown into the mix…

As with all other Chancellors, ‘Spreadsheet Phil’ is deploying a pre-Budget warm-up act to “build a stronger, more prosperous economy”. The pressure will be particularly intense given talk from the PM that austerity is coming to an end and that there will be cash boosts for the NHS to the tune of £20 billion over the next five years. To that end, something that may be giving Hammond sleepless nights is the fall-out from possibly breaking the Tory pledge to cut income tax, by not raising the threshold for the basic rate and also earners hitting the 40% band. A tough sell for any Conservative in the Treasury, but this is likely to happen. It will be another opportunity for a stinging attack from a rebellious right-wing in the party. However, Hammond will be thinking cash for the NHS has to come from somewhere…

Given Mrs May’s assurance at her party conference in Birmingham earlier this month on a fuel duty freeze (for the ninth consecutive year) it appears politically impossible the Chancellor will raise it. It’s a costly move though, with the freeze estimated to deprive the Treasury of £9 billion per annum, according to the Institute for Fiscal Studies. Again, that NHS funding boost won’t grow on trees.

But where else is NHS cash and other spending commitments going to come from?

Tory insiders have told The Daily Mail that “everything is on the table now”. This has a ring of the usual expectation-setting that stalks Budget PR, often accompanied by a row-back on suggested unpopular measures. Don’t forget the cliched ‘rabbit out-of-the hat’ sweeteners too…

There is a likelihood of a ‘raid’ on small businesses coming. Among others, The Daily Mirror has reported Hammond will propose to bring ‘hundreds of thousands’ of small businesses into the VAT system, by lowering the entry level for charging VAT from £85,000 to £43,000 (quite the cut). This will be a tough pill to swallow from a party that says it supports small business. The Federation of Small Businesses has already slammed the suggestion as a “blatant tax grab” – which, frankly, it looks like it is. The Chancellor will have to assess whether the backlash is worth the £1.5 billion it is predicted to bring into Treasury coffers.

If the PM cannot be seen as a builder of consensus on Brexit, she sure wants to be seen as a builder of homes to deal with the housing crisis. Her conference announcement that the current borrowing limit on councils will be axed to allow the building of more homes carries an annual investment cost of a billion. Following the PM alluding to a 3% surcharge on stamp duty for foreign home buyers at conference, it seems likely this will feature in Hammond’s budget too. Also, keep your eyes peeled for a gift to struggling first-time buyers as it’s believed the Chancellor may announce a capital gains tax break for landlords wanting to sell their property to tenants. This would chime well with the PM’s ‘opportunity’ mantra of late.

In other areas, a cut in higher-rate pension tax breaks may be on the cards. Hitting older people in Budgets is never comfortable or popular with the Tories’ voters. And, in another uncomfortable policy area for the Government, Universal Credit is likely to get the additional investment some have been demanding, for example Iain Duncan Smith. But don’t expect it to be anywhere near the £2 billion suggested.

We’ll be blogging on the Budget next week as it takes place. Whatever happens, it’ll be high political drama (as usual) in Westminster.

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