Helping hand for first-time buyers
Hammond sells ‘dream’ of home ownership with stamp duty cut in optimistic Budget vision
PHILIP HAMMOND abolished stamp duty for most first-time buyers as he offered an optimistic vision for Britain’s future in a Budget designed to appeal to the younger generation.
The Chancellor put solving the housing crisis at the heart of his second Budget as he promised to make home ownership “a reality, not just a dream”, for those priced out of the market.
Mr Hammond set out to cast off his “Eeyore” image with a positive Conservative vision of a country “full of new opportunities”, with £25billion of new spending as the Government’s austerity drive was watered down significantly.
He sought to appeal to younger voters amid growing Conservative fears that the unaffordability of homes for those in their 30s was driving voters into the arms of Labour.
The former Remain campaigner also tried to prove he can be trusted as a Brexit chancellor by talking of the “enormous prize” presented by leaving the EU, as well as pledging an extra £3billion to prepare the country.
Other headline policies included an extra £6.3billion for the NHS, higher taxes on new diesel cars, a £1.5billion package to speed up Universal Credit payments and a rise in the 40 per cent income-tax threshold to £46,350, with the personal allowance increased to £11,850.
Mr Hammond was forced to fund most of the giveaways through extra borrowing, after the spending watchdog downgraded its economic growth forecast with a warning over the productivity of British workers.
The Office for Budget Responsibility (OBR) said growth would be below 2 per cent for the next five years, the worst forecast since 1983. It also classed one in five of the Chancellor’s policies as “high” or “very high” risk strategies that were based on insufficient data and unpredictable economic assumptions.
However, Mr Hammond remained bullish about Britain’s prospects, saying the economy “continues to confound those who talk it down,” and warning that “those who underestimate Britain do so at their peril”.
Having been warned that his job was on the line if his Budget flopped, Mr Hammond appeared to have done enough to stay in No11 for now, with Tory MPS praising his “better than expected” performance.
Boris Johnson, the Brexiteer Foreign Secretary, described it as a “great Budget” and the Chancellor was given a positive reception when he addressed the backbench 1922 Committee.
Nick Timothy, Theresa May’s former chief of staff, who had a famously difficult relationship with the Chancellor, writes in today’s Daily Telegraph that he “passed the test”, although he said many of the most eye-catching measures were drawn up in No10.
Mr Hammond’s top announcement was the abolition of stamp duty for first-time buyers on properties costing up to £300,000, effective immediately.
For those living in London and other expensive areas, the first £300,000 will be free of stamp duty on properties costing up to £500,000. The Treasury said the policy, which follows a Daily
Telegraph campaign, would benefit one million home buyers over the next five years, taking 80 per cent of firsttime buyers out of stamp duty and saving them an average of £1,660.
“We send a message to the next generation that getting on the housing ladder is not just a dream of your parents’ past but a reality for your future,” the Chancellor said.
It emerged last night that the idea of abolishing stamp duty was first raised by Downing Street as a possible manifesto pledge before the election.
The OBR gave the policy a lukewarm response, saying it would lead to higher house prices and suggesting only 3,500 more people per year would be able to afford their first home as a result.
There was no money to increase the pay of public sector workers, but Mr Hammond said he would find extra for nurses if a rise was recommended by the relevant review body.
Allies of Mr Hammond played down the gloomy long-term economic forecast by insisting that the picture would change completely if a Brexit transition deal could be agreed over the coming months.
One said it was “a Budget for this year and for 2018-19” because of the uncertainty about the terms of Britain’s exit from the EU, adding that movement on Brexit “transforms everything – business sentiment will change overnight”.
Jeremy Corbyn, the Labour leader, claimed Mr Hammond’s plans would quickly unravel and result in “misery” for “ordinary people”.
Politics is all about managing expectations, as spin doctors have known at least since the time of Niccolò Machiavelli. It is not hard, when everybody expects you to fall flat on your face, to confound your critics. Philip Hammond delivered an uninspiring, bitty Budget that did not really tackle any of the challenges Britain faces, but it was executed competently and it means that he survives to fight another day.
His tactic was to give just enough to all of his critics to buy him time. There was no grand vision, just a long list of enemies, ideological opponents and interest groups to be bought off. Eurosceptics got more than they expected: £3 billion over two years to prepare us to leave the EU, allowing Mr Hammond to claim that he is taking Brexit seriously, while not having to change his actual views on the subject.
Next came the free-marketeers. They loved the abolition of stamp duty for first-time buyers of homes worth less than £300,000: at last, a proper Tory tax cut, a sound, non-socialist solution to a social problem, even if it will also make an extremely complex tax system even more fiddly.
For fiscal hawks, Mr Hammond was able to square a tricky circle: the deficit will continue to fall as a share of gross domestic product, even if the books will apparently never really be balanced, while a lot more cash – peaking at more than £7 billion in two years’ time – was found to spend on various projects. Others will be happy too. The NHS will get more money, as will nurses, and the new Universal Credit welfare system will be fixed. It turns out that Fiscal Phil is, in fact, quite good at working out how to push spreadsheets to their limits.
Housing was a similar, albeit less successful, exercise in compromise: the numbers announced sounded grand yet opaque. It will be harder for Hammond’s critics to argue that he isn’t serious, even if in reality just £15.3 billion of the £44 billion multiyear package announced was new. Much more regulatory change was needed, and we’ve been waiting for the garden cities he repromised for years. But the housing announcement sounded like something, and that’s all Mr Hammond needed for now.
So much for the political statecraft: the more important question is where all of this leaves Britain. We face three immense, inter-related challenges: making the most of the once in a lifetime opportunity that is Brexit; turbo-charging a UK economy that – apart from the jobs miracle – has failed to shine since the financial crisis; and rebuilding our ownership society. It’s not enough for the Tories not to implode: they need to deliver real, revolutionary, tangible change over the next few years, or else the public will turn to Jeremy Corbyn’s cataclysmic brand of Marxism.
This is where the Budget failed to rise to the challenge. If the Office for Budget Responsibility (OBR) is to be believed, the outlook is terrifying. It believes the economy will be 2.8 per cent smaller by 2021-22 than it thought just eight months ago, and it has slashed its forecasts for the foreseeable future. The numbers are dire: the new normal for growth is now thought to be about 1.6 per cent a year, instead of 2.5 per cent. These are the worst set of official growth forecasts since at least 1983, and possibly ever.
This downgrade is not related to Brexit and is not another attempt at Project Fear: it is simply that our official forecasters have decided that we are stuck in a low-productivity rut, with no way out. They do not understand what is happening, but they have been so wrong on productivity and wage growth in the past that they have now decided that it is more prudent to embrace a radically pessimistic outlook.
One can, of course, simply dismiss these figures: forecasters always miss the mark and tend to assume that the future will look like the recent past. But Mr Hammond is an establishment man, and generally agrees with civil servants. Our system of government is also increasingly the prisoner of technocratic process: the OBR’S forecasts matter inasmuch as tax and spend is set according to them, and they are used to judge whether the government’s fiscal rules will be met. The downgrade by the government’s official forecaster will encourage others to follow suit, which could make some investors more reluctant to invest in the UK.
There is, of course, a simple solution to all of this which also addresses the Brexit and housing challenges head-on: an ultra-ambitious pro-growth policy aimed squarely at raising productivity and our annual GDP growth rate. That is exactly what the Republicans in America are seeking to do at the moment with their neo-reaganite programme of proposed tax cuts. Mr Hammond could have highlighted the OBR’S downgrade, and built his Budget around a plan to fight back, while simultaneously doing a lot more to bolster housing supply, perhaps the single biggest drag on productivity.
The fact that he did not confirms that behind his more confident, even upbeat performance he remains pretty defeatist about the task at hand. If the OBR is right, we are in an economic emergency: after outperforming many of our closest competitors for the past 30 years, we could be about to fall into a period of quasi-stagnation, Japanstyle. So why didn’t the Chancellor announce an urgent dash for growth, and make that his number one priority?
If lower taxes work for young people, as Mr Hammond now rightly admits, why not for everybody? If supply-side economics make sense with stamp duty, why not for other taxes? If it’s worth investing £3 billion for Brexit, why not an extra £3 billion on pro-growth tax cuts, or even £13 or £30 billion? It is a great shame that Mr Hammond didn’t at the very least announce a committee to look at the sort of dramatic tax reforms that the US is currently working on. If it’s good enough for planning permissions, why not for overall economic growth?
A fundamental disconnect remains between the magnitude of the challenges facing Britain and the limited tools that the Chancellor continues to deploy. The Budget will earn him some breathing space, but without a much more radical longterm strategy to overhaul the economy it will end up counting for nought.