Chancellor spends windfall to mark ‘end of austerity’
Philip Hammond declared on Monday that “austerity is coming to an end” as he sought to reassure voters, and shore up the morale of the fractious Tory MPs Theresa May needs to back her Brexit deal, by peppering his budget speech with spending pledges and a surprise income tax cut.
As negotiations with the EU27 enter their final weeks, the chancellor cast off his cautious reputation and opted to spend almost all of a £68bn ($86.8bn) windfall handed to him over the next five years by the Office for Budget Responsibility (OBR).
In an unexpectedly generous package, which will pump an additional £15bn into the economy next year, Hammond met colleagues’ demands to cushion the impact of universal credit, with a £1,000-a-year increase in the work allowance claimants can earn.
He announced a slew of other short-term giveaways, on everything from defence spending to potholes, and refrained from tax measures – such as a raid on pensions – that risked falling foul of the government’s lack of a secure majority.
One of only a handful of revenue-raising measures involved a £400m-a-year levy on larger tech companies, such as Google, Facebook and eBay.
Hammond also confirmed that he will bring forward to 2019 the Conservatives’ manifesto pledge to increase the income tax personal allowance to £12,500, and the higher-rate threshold to £50,000, handing an income tax cut of up to £860 a year to higher earners.
The OBR said the chancellor could have used the unexpected bonus of much lower than expected borrowing to meet his goal of putting Britain’s finances back in the black by the middle of the 2020s. Instead, the independent watchdog noted that Hammond had spent the “fiscal windfall rather than saving it”.