The contents Philip Hammond’s Budget Statement were always going to be constrained by the economic uncertainties about Brexit. The extent of these constraints were made clear by the latest growth forecast for the UK economy prepared by the Office for Budgetary Responsibility (OBR). With growth for 2017 now forecast to be 1.5% (instead of 2%) and with growth set to fall to 1.4% and 1.3% in 2018 and 2019 respectively it was clear early in the Chancellor’s statement that there was little scope for financial largesse.
Sure the cut in Universal Credit waiting time, the 4.4% rise in the National Living Wage to £7.83 per hour from next April plus the £11,850 personal allowance for income tax for 2018/19 do help the lowest earners. That’s good news - but most households seem set to gain little in their struggle with rising living costs.
The changes to Stamp Duty Land Tax (SDLT) to help first-time property buyers were not unexpected. These buyers will pay no SDLT on properties costing up to £300K and pay a zero-rate on the first £300K of properties costing up to £500K in London and other expensive areas. But watch out as SDLT changes are typically counterbalanced by moves in house prices. Lower (or no) SDLT outgoings may simply mean that first-time buyers use the ‘saving’ to bid up property prices and hence simply end paying more for that first property purchase.
Indeed much of the Chancellor’s statement focussed on plans that are intended to produce ‘jam tomorrow’ rather than ‘jam today’.
The plans for investment to boost productivity will, if successful, benefit workers by eventually boosting earnings for a more productive workforce.
Similarly the plans to boost housebuilding should, assuming that the new properties materialise in the numbers planned (300,000 per year by the mid-2020s), at least help to keep the lid on house prices. But in both cases we’ll have to wait some years for households in this country to benefit.
Martin Upton
Director of the True Potential Centre for the Understanding of Finance (True Potential PUFin)
Open University Business School
22 November 2017