Chancellor Philip Hammond is set to exercise some caution despite recent positive changes to economic forecasts as his first and last Spring Budget announcement approaches.
Reports of positive economic momentum towards the end of 2016 and following through the beginning of this year will contribute to a positive forecast for economic growth into next year. The extra growth with help to buffer the chancellor’s £27 billion fund set aside as a contingency against any potential economic fallout from Brexit. However, he has made it clear that none of this fund is to be used to contribute towards planned increased expenditure on things like social care, which must be paid for instead by either further cuts or increased taxation.
Speaking to ITV on Sunday, he said: “If somebody gives you a bit more headroom on your credit card, it doesn’t mean you have to rush out and spend it all at once.”
The Brexit contingency fund is staying as just that, Hammond has assured, and is not a “pot of money” to be used at will, despite shadow chancellor John McDonnell and others asserting that at least some of it would be better spent on the NHS.
Hammond dismissed the suggestion that he should immediately boost spending in response to positive growth as “reckless”. Rather, he argued, the added funds should be used as a buffer to ensure that “as we embark on the journey that we’ll be taking over the next couple of years we are confident that we’ve got enough gas in the tank to see us through that journey, and that seems the sensible way to approach things”.
An extra £1 billion is expected to be added to the social care budget, but where exactly it will come from is as yet unclear. Some are predicting an increase to National Insurance contributions due from the self-employed – with Class 4 NI going up from 9% to 12% – to bring them in line with those due from employees.
Other changes to taxation that are set to come in include an increase to the personal allowance – which will rise from £11,000 to £11,500 – as well as a slight increase to the weekly earnings threshold to be met before National Insurance is due – from £155 to £157. These changes will come into effect in April.
There will also be freezes to various benefits including to child benefit payments (with rates staying at £20.70 per week for every first child and £13.70 for subsequent children) and to most universal credit rates. For both of these benefits, expected rates of inflation mean that a freeze is an effective cut.
All in all, the budget is set to be one that promises to huge shocks, with most measures aimed at cementing the position of the British economy as we approach the triggering of Article 50; partly through retaining the emergency fund and partly through loosening up funds to spend through added taxes and reduced expenditure elsewhere.