Budget 2018: the FT's economics editor briefs the newsroom
Chris Giles breaks down the big measures announced by UK chancellor Philip Hammond after he said the era of austerity was 'finally coming to an end'.
Filmed by Petros Gioumpasis and Joe Sinclair; edited by Joe Sinclair
Thinking about what the big measures are. So clearly - austerity coming to an end - we need to be very clear about what's happening exactly there. The big personal income tax change of increasing the personal allowance to £12,500 and the higher rate threshold to £50,000, a year earlier is very big for money clearly. Then the other very big change, because these are in billions, these sorts of changes.
The other very big change is universal credit. The change in the work allowance, increasing that by £1,000, costing $1.7bn a year. That's also a very large change. So those things will mean that for, across the income distribution, all the income tax changes are going to help the middle and richer people, particularly the top of the income distribution because of the higher rate income tax change. But the universal credit will help the bottom end, and so it's probably reasonably spread across the income distribution.
And then when we think about business measures, the big ones are clearly the digital services tax from April 2020, unless there's an international agreement. And that was £400m a year, he was pencilling in for that. And then two quite big clamping down measures on the self-employed. The IR35 change, that's for contractors in private sector companies. They're going to be subject to the same rules as what already happens in the public sector.
And although he disguised it, I think there's quite a big cut in entrepreneurs' relief for, I don't know exactly how much that will cost, but by limiting it to two years not one year. So essentially it means you can't open and shut companies down and keep on claiming that relief. So the big question is how is he paying for all of the stuff, particularly the public spending stuff come the end of the period.
We know how he's paying for it in the short term, because he's got a lot of upfront cash from the OBR, from the forecast being better. But then when the health service spending really kicks in the 2020s, that comes to be a lot more than he's likely to get from the forecast changes. So we have to see how that gap is... how that gap is closed. And I will get that from the documents.
Housing was the one area that we really didn't see it. The action we really thought we might see. In environment, in the plastic tax on the manufacturing and import of non-recycled plastic packaging, is pretty much what we thought. And then there's a whole bunch of duties, alcohol and fags. And fuel duties, interestingly freezing beer and spirits, but not wine. We actually got taken to the ECJ in the mid-1980s for doing exactly that, and lost because it was deemed to be anti-European to do that - because we - but since we'll be out of the EU by then, even if it gets taken to ECJ again it will be too late.
Isn't it striking that he's only talking about £400m for additional services tax?
Yeah, Yeah. I mean, you think Facebook is going to make £8.6bn.
But he's trying to force the piece on the international negotiation.
But also the US will hate it and does hate it. So he doesn't want to go - he's not really going very hard. It's putting your toe in the water, rather than - it's not a trade war with US.
No. The macro impact... The macro impact is small. He's basically been given a windfall and he's spent it. That's the big...
So we've got a windfall - now we need to spend it.