Budget: Hammond breaks manifesto promises on national insurance
The Government’s defence of the manifesto broken promise on “no national insurance hikes” appears to be: you should have listened more carefully to what we told you after the election. Government sources say the post-election legislation enshrining the promises on no tax hikes mentioned only class 1 national insurance and so gave them a carte blanche for raising class 4 national insurance.
If you’re doing this sort of thing you have to make sure other big announcements catch the headlines. You have to get the agenda moving on promptly. Maybe the Government can achieve the latter with something colourful tomorrow or tonight. I can’t help thinking there will be attempts at that being pondered as I write. But the Government doesn’t seem to have another immediate distraction in prospect. There are echoes of the George Osborne abolition of the 50p rate Budget which was so heavily leaked beforehand that attention pounced on the only new bits that were fresh, like the pasty tax.
Organisations like the Resolution Foundation are very supportive of the raising of class 4 national insurance, saying that this is a progressive move and very necessary given the escalating giveaway of Treasury funds that could happen if it is not addressed and, as Philip Hammond argued in the Commons, the unequal tax treatment between employees and the self-employed.
There will now be a backlash from, amongst others, some Tory- supporting newspapers. The Telegraph will be calculating that a lot of their readership will be heavily affected by the dividend allowance reduction (bringing in £2.5bn) as well as the NICs change (£2bm). The Mail and The Sun will calculate they have quite a few of those affected amongst their readership too. The track record of Mrs May resisting their campaigns isn’t strong. The push to ease business rate hikes for some businesses was started by some of them.
Maybe this was a measure the Government should’ve tried to roll out early, preparing the pitch for its announcement. It’s now playing catch up and Mrs May will not like that.
The Chancellor made much of how economic data was improving but it’s not improving that much – growth ends up roughly the same over the forecast period, it’s just down a bit one year and up a bit another. Compare the outcome to the March 2016 Budget, before the EU referendum, and it’s a gloomier outlook still.
The Lord Chancellor’s change to the personal injury discount rate, announced last month, has hit the Treasury coffers (see table 1.3 in OBR report, p14) to the tune of £1.2bn a year. That means the Chancellor’s headroom isn’t quite as big as it might have been and he’s had to borrow more than he might have done to make sure the NHS budget isn’t hit by the impact of Liz Truss’s decision. But he’s using all the remaining headroom, £25.8bn (p189, OBR) to store up money for choppy waters as the markets and employers react to the ups and downs of the Brexit negotiations.
The big changes in how we afford social care in England are left for another day. As is the revolution Theresa May promised JAMS or AWFs in her October 2016 conference speech. The just about managing or the average working families will have to wait for big changes. There aren’t really any here. This is the Budget Philip Hammond didn’t really want to have. There had been discussions in his office about doing away with the Red Box today to make the point.
Philip Hammond’s team have talked of him feeling that he is hemmed in by “legacy commitments,” by which he means manifesto commitments. He’s about to get a flavour of what happens when you try to shrug one of them off.
Given the recent speculation about an early election it’s probably worth saying this was the least plausible pre-election Budget in history. Some claim work was done, starting at the end of last year and led by a No. 10 staffer, scoping the plausibility of an early election. On the evidence of today’s Budget, it really didn’t fly as an idea.
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