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UK Budget 2018: experts respond

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Written by: Craig Berry, Manchester Metropolitan University, Mandy Pierlejewski, Leeds Beckett University, Maria Goddard, University of York, Michael Kitson, Cambridge Judge Business School, W David McCausland, University of Aberdeen

Philip Hammond has delivered his third budget as the UK’s chancellor of the exchequer. It is the final budget before the UK leaves the EU. Here our panellists give their take on what it means for the UK economy. Stay tuned for further updates and follow @ConversationUK on Twitter.

The end of austerity?

Craig Berry, reader in political economy, Manchester Metropolitan University

Austerity has attained a rarefied status in British political discourse. Like “equality” and “freedom”, it now seems to mean whatever the person uttering it wants it to mean. Theresa May has never liked austerity, although she has never really explained why. And now she declares austerity over, not because it actually is over, but rather to signal her distance from the George Osborne era, replicated so faithfully until now by chancellor Philip Hammond.

So, is austerity over? Did it ever really begin? There has never been any serious attempt to raise taxes (other than VAT); although economics textbooks define austerity as cutting spending and raising tax.

In this budget, Hammond announced major tax reductions: cutting business rates for local retailers, and accelerating planned reductions in income tax (predominantly benefiting the already affluent, at a cost of £2.8 billion in 2019-20). He opined that all of the hard work is finally paying off. Yet individual and business taxes have not actually been rising, so the hard work has not really been done in any material sense – only ideologically.

And the specific cut to business rates offers a depressing echo of Osborne’s austerity, which targeted local government for drastic cuts while central government departmental spending was largely spared. Osborne began the process of localising the management of business rate revenues, partly in compensation for severe cuts in grants for local services – so any centrally-mandated cut in business rates could further hit many local authority balance sheets.

As for spending cuts, the question of how large public spending (and therefore public borrowing) should be is a largely frivolous issue now. Whereas May wants to signal the end of austerity to make us all feel better about her premiership, Hammond is only pretending that today’s budget has anything at all to do with the slippery notion of austerity.

For Spreadsheet Phil, the cold, hard fact of an impending Brexit is all that matters. Helped by slightly higher tax receipt forecasts, he is relaxing some of the most drastic of Osborne’s backloaded cuts, most obviously by increasing work allowances in Universal Credit (in other words, the point at which benefits are withdrawn). He is largely delivering on May’s promises on health spending, and sprinkled the budget with some relatively low-cost initiatives such as more money for fixing potholes, more support for industrial R&D and infrastructure, and some cash for the “little extras” in schools.

This is not an expansive agenda, but rather one designed to help May to stay in post just long enough to get some sort of Brexit deal. At the same time, he is persevering with the cuts, for the most part, because the risk of “no deal” – and therefore fiscal calamity – remains high.

The UK’s economic slump has reached the point where even the most austere of chancellors would traditionally have been hitting the stimulus button, therefore actually ending austerity – the growth forecasts are, frankly, abysmal. But Hammond knows there is little point in acting until we know what the Brexit deals looks like.


Michael Kitson, senior lecturer in international macroeconomics, Cambridge Judge Business School

Despite making big claims to end austerity, there was no clear vision from the chancellor. This was an Elastoplast budget that has patched up some of the problems in Britain’s economy but failed to provide a coherent strategy for long-term growth.

There were welcome initiatives: more funding for the NHS, the clamping down on tax avoidance by the global tech companies, and the announcement of no new private finance initiatives. Plus, the business rate relief initiatives may help slow (but not prevent) the decline of the high street.

The chancellor said he believed “passionately” in the productivity challenge but his rhetoric was not matched by policy and he only made passing reference to the piecemeal budget initiatives which are buried in the Red Book. Sluggish productivity growth is the major problem facing the UK economy as it is the main driver of the growth of wages, profits and tax revenues. If the chancellor was serious about crafting a budget for “strivers, grafters and carers” then he would implement a coherent investment strategy to increase productivity and help the economy to deal with the turbulence of Brexit.


David McCausland, professor of economics, University of Aberdeen

Though wage growth has improved recently, real wage levels are still below pre-crash levels. So today’s rise in income tax thresholds (to the manifesto commitment levels, a year early) will be good news (though perhaps not to middle income Scots if the higher rate thresholds are once again not passed on).

The rise in the national living wage from £7.83 to £8.21 (as of April 2019) is likewise very welcome. Households will also be relieved that fuel duty is once again frozen and the freeze on duty on beer, cider and spirits will also be welcome to many.

But these headlines aside, much of this budget consists of relatively small initiatives and, though individually valuable, somewhat underwhelming as a whole.

Health

Maria Goddard, professor of health economics, University of York

This was always going to a “no surprises” budget as far as the NHS is concerned. The 3.4% annual increase in real spending planned over the next five years – amounting to around £20.5 billion by 2023-2024 – was announced by the prime minister in the summer. But the chancellor did announce that mental health services will receive £2 billion of this original NHS settlement. The NHS will welcome the increase in the share of funding dedicated to expanding mental health services. But many are likely to say it is insufficient to tackle growing demand and historic low spending levels.

Recent spending settlements have fallen well short of keeping up with the extra demands of a growing and ageing population. And the £20.5 billion boost may only be sufficient to maintain the status quo. The secretary of state for health has argued the key point is for the NHS to use this money wisely, rather than frittering it away. But the level of funding is seen by many as only enough to allow the NHS to catch up
with a decade of austerity.

The extra funding for social care (around £700m) is likely to be met with similar reactions – a welcome boost but not nearly enough to support a high quality, sustainable care system in the face of rising demand and local authority budget pressures.

Many public health services aimed at the prevention of ill-health are funded separately from the NHS via a grant to local authorities. Cuts to this public health grant have also been significant over time. And this too will partially offset any positive impact of increased NHS spending.

The decision to freeze duty on alcohol will also disappoint many in the NHS, although scheduled price rises for some alcohol will remain. In England, alcohol is the leading risk factor for ill-health, early mortality and disability for those aged 15-49. And it is the fifth leading risk factor for ill-health over all age groups. As smoking is the leading cause of preventable illness and premature death in England, the extra duty on tobacco could go some way to delivering public health gains.

Education

Mandy Pierlejewski, senior lecturer in teacher education, Leeds Beckett University

Phillip Hammond’s cash infusion for schools of £400m will be seen by many in the education sector as an insult. Recent cuts to education in the last eight years have meant that in real terms, spending per pupil has declined by 8% in England. As a result, a highly corrosive knife-edge mentality pervades the current system. Fear of falling off the edge into an unsustainable financial deficit dominates decisions so that long-term strategic planning in schools is replaced by short-term crisis management.

Alongside this financial knife-edge, is the equally destabilising fear of judgement by results. The data-led accountability system, which relies on test results as a key performance indicator means that a poor cohort can signify the difference between an Ofsted judgement of good or requiring improvement.

The outcome of this system for children, is that every day, they enter a highly charged environment. They will be taught in larger classes by fewer staff with less resources. Their curriculum will be narrowed to focus on English and maths at the expense of sports, the arts, humanities and personal, social and emotional learning. They will be subject to a raft of standardised tests which judge and rank them, exerting excessive pressure to achieve from the age of four onwards.

In this context, it is no surprise that child mental health has deteriorated with a 70% rise in anxiety and depression among teenagers . An “extra bit of kit” is not the solution to such a deep and complex problem. To fix this broken system, a very significant injection of cash is needed, alongside changes to policy to ensure children receive a balanced curriculum in well resourced schools by a highly motivated workforce.

More to follow ….

Craig Berry is a member of the Labour Party.

Maria Goddard receives research funding from the Department of Health and NIHR. The Centre of which she is Director receives research funding from a variety of sources. The views expressed are personal and do not reflect those of any funders.

Michael Kitson has received funding from BIS, HEFCE, EPSRC, ESRC, AHRC, NERC and the MRC.

Mandy Pierlejewski and W David McCausland do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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