Closed Autumn Budget: Hammond declares ‘austerity coming to end’ – as it happened

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Our coverage starts at 14:30 (GMT)

Good afternoon and welcome to our live coverage of the Budget. Just a reminder that the chancellor is due to address MPs in parliament at 15:30 GMT. This will be Philip Hammond’s third Budget and his last before the expected Brexit date of March 29 next year. But it comes against the backdrop of an impasse in the negotiations between the UK and the EU, with prime minister Theresa May under pressure from Eurosceptic MPs in her own party to drop her so-called Chequers plan which is designed to ensure a relatively soft Brexit, although there are still issues outstanding, not least the issue of the border between Northern Ireland and the Republic.

Mr Hammond is set to herald the end of austerity while warning Eurosceptics that his plans will be damaged if the UK does not secure a good Brexit deal. But he has already been undermined by Downing Street which said on Monday morning that all spending commitments in the Budget would be funded “irrespective of any deal”, as the FT’s Jim Pickard pointed out earlier on Twitter.

For those of you who can’t access Twitter the tweet reads:

Sunday: Hammond says another Budget will be needed in event of no-deal Brexit

Monday: Downing St says the opposite. “All these spending commitments are funded irrespective of a deal.”

Keeping their own party’s Eurosceptic MPs onside is crucial for Mrs May and Mr Hammond. The Budget has already brought the Budget forward to avoid it being caught up in the final frantic negotiations over a Brexit deal. Some Tory Eurosceptic MPs are threatening to vote against the government’s Brexit policy because they believe it will keep the UK tied to the EU. So the last thing the chancellor wants to do is alienate any of his fellow Tories with tax rises in this Budget. Eurosceptic Tories already take a dim view of the Mr Hammond because of the Treasury’s continued negative warnings on the impact of Brexit.

Our 2016 profile of Philip Hammond and his business career can be found here, for anyone wanting a bit of background on the chancellor’s past commercial experience.

Facing such a tricky balancing act, Mr Hammond has been given a timely boost by what looks set to be the biggest upgrade in public finances in decades.

This will allow him to back prime minister Theresa May’s pledge made earlier this month to end austerity.

It will allow him to deliver on a core government promise to increase spending on the NHS without having to put taxes up. Any tax increases are likely to be opposed by Eurosceptic Tory MPs who already take a dim view of the chancellor because of the Treasury’s continued negative warnings on the impact of Brexit.

Measures which have already been trailed include more extra funding for motorways, extra defence spending, reforms to universal credit, money for rough sleeping and broadband, and a support package for high streets and small retailers. There’s also been a bit of crowd-pleasing: the UK will mint a special Brexit-themed 50p coin, the chancellor will announce.

Tax cuts are one of the major decisions the chancellor could take; some MPs want the money that would otherwise be used for that to go towards fixing the government’s troubled benefit reforms instead.

There will be a Spending Review next year, and given the uncertainties of Brexit, it would be unsurprising if the chancellor chooses to postpone some major decisions until then. One of the biggest Budget decisions, of course, was taken quite a while ago – Theresa May announced this summer that the English NHS would get extra funds amounting to an additional £20bn a year in real terms by 2023-24.

The politics of the Budget could prove more difficult than usual, because the Conservative party is governing with the support of Northern Ireland’s DUP. The DUP has threatened to block the budget in the forthcoming Commons votes, if the government’s Brexit deal involves imposing new regulatory barriers between Northern Ireland and the rest of the UK. The DUP’s 10 MPs could make all the difference between winning and losing a vote.

The most important test of whether a prime minister can govern is their ability to pass a finance bill. Losing the budget bill could therefore trigger a confidence vote.
DUP spokesman Sammy Wilson told the BBC earlier today that it would be “reckless” of the party to oppose the Budget, given that it had not yet seen the detail of the withdrawal agreement. However the government “shouldn’t take it for granted” that the DUP will support its future legislation once the Budget has been passed, he said.

The markets have been pretty calm so far today, with sterling trading down 0.16 per cent to $1.2811.

The British economy’s Achilles heel remains, of course, its poor productivity. British workers produce about 20 per cent less per hour than French and German ones, and their efficiency has barely improved for a decade. Expect to hear plenty from the chancellor on how he plans to boost productivity through investment in housing, infrastructure and skills.

This time last year, Mr Hammond announced a £23bn national productivity infrastructure fund – a way of earmarking money for these sorts of projects. He upped the size of the fund to £30bn in March, and it’s possible he’ll up it again today.

Mr Hammond faces a huge challenge to deliver on Theresa May’s pledge to end austerity at the Conservative party conference at the start of October. This was met by criticism from Labour leader Jeremy Corbyn that the promise amounts to nothing more than “a great big Conservative con”.

The Resolution Foundation reckons that to end austerity he needs healthy public finances and £31bn a year. But the state of the finances will depend crucially on the success of Brexit and measuring the impact of the UK’s looming exit from the EU is very difficult given two big unknowns: what would have happened to the economy if the referendum result had gone the other way and what will the Brexit deal ultimately look like.

You can read Chris Giles’ analysis of the challenge here.

With the UK’s growth rate dipping from 1.7 per cent at the time of the referendum to 1.2 per cent now and equivalent rates in the US and eurozone rising over the same period, there is little doubt that the referendum result has led to a slowdown in the expansion of the UK economy and living standards.

While economists disagree on the scale of the hit to the UK economy, both those who support and oppose Brexit generally accept that the referendum vote has knocked between 1 and 2.5 per cent from economic output since 2016, the equivalent of between £20bn and £50bn a year in lost business in the UK.

The FTSE 100 index of leading shares is up 1.7 per cent on the day, although the recent weakness in global equity markets has weighed on it over the past couple of weeks.

In the past few years, Budgets have often been dominated by dramatic changes to the economic forecasts – sometimes the prospects for growth have been revised up, but more often they have been revised down. This year, though, we’re not expecting them to change very much.

The FT’s Chris Giles predicts that growth forecasts will be downgraded slightly in the short-term, but that will be more than made up for by better upgrades in the longer-tern.

The other thing to remember is that all the OBR’s forecasts – for growth, employment, inflation and the like – presuppose a smooth Brexit.

Philip Hammond has just enjoyed the classic red box photo opportunity which is a hallmark of every British Budget day, and is now on his way to the House of Commons.

Among the pledges made recently by Mrs May to show that she was serious about ending austerity was the now annual tradition to freeze fuel duty. A tactic aimed at keeping voters onside started by the then chancellor George Osborne back in 2010. We are now in the ninth successive year of the freeze and the estimated annual cost to the Treasury of the latest decision is in the region of £1bn.

The chancellor is preparing to stand up in the House of Commons; the Budget will start in the next couple of minutes.

Philip Hammond has opened his 2018 Budget by proclaiming “a Budget for hardworking families … the strivers, the grafters and the carers who are the backbone of our economy”.

He flags up minimising the tax take as a key priority – that could be significant.

The Budget “paves the way for a brighter future” because of “the tough decisions of the past eight years”, he says.

Austerity finally coming to an end
We did what needed to be done, Mr Hammond says. Now he is “opening a new chapter in our country’s economic future”. Today he can report that the era of austerity is finally coming to an end.

Mr Hammond is talking about the last time a Budget was held on a Monday, in 1962. He draws some historical parallels. The media has questioned his decision to hold the Budget today rather than on Wednesday, he adds – if held on Halloween, some might dub it Hammond’s House of Horrors.

Chancellor hits out at Labour

Hammond starts with an old trope – lauding how the Conservatives have helped the economy recover since the financial crisis under Labour. He mentions wages growing at their fastest pace in a decade (which is a bit cheeky because they’ve barely grown at all for a decade).

On Brexit deal

We are confident that we will secure a Brexit deal that delivers a double deal dividend, Mr Hammond says.

He is taking a three-pronged approach:

He has already allocated funding to departments for Brexit no-deal preparations, and is increasing that by £500m to £2bn.

Secondly, he will maintain the headroom to his fiscal rules, retaining firepower to intervene if needed in the coming months.

Thirdly, if the economic or fiscal outlook changes materially he will take action, if necessary upgrading the spring fiscal statement to a full Budget.

Now to the OBR’s economic forecasts – will the numbers fit Hammond’s rhetoric about the UK starting a new and brighter economic chapter?

Hammond announces GDP growth is now forecast to be 1.6 per cent next year (up from 1.3% forecast in March), 1.4% in 2020 (up from 1.3%) , 1.4% in 2021, (unchanged) 1.5% in 2022 (unchanged) and 1.6% in 2023.

Hammond moves on to the labour market, which he says will continue to do well. He doesn’t go into specific numbers on wage growth, but says real wage growth will continue throughout the forecast period.

Borrowing forecasts

On the public finances, Hammond says borrowing will be:
£31.8bn in 2019-20 (down from £33.9bn)
£26.7bn in 2020-21
£23.8bn in 2021-22
£20.8bn in 2022-23
£19.8bn in 2023-24, adding this will be the lowest in 20 years.

He also said both fiscal rules will be met three years early.

Mr Hammond moves on to talking about public spending.

The OBR has confirmed a significant improvement in the public finances, he says, and that means he can deliver on his promise to set out a new path on public spending.

Next year he will conduct a spending review. Today, he has set an indicative five year path for departmental spending. In 2010, the spending review had -3% average annual growth; the next spending review was -1.3%; from next year it will be +1.2% average annual real growth.

He expects the Brexit deal dividend will then allow additional spending on top of that.

Every chancellor likes to have a rabbit or two in his hat when he approaches his Budget, but this year some of his star bunnies escaped early, Mr Hammond says – including the NHS spending commitment, which the prime minister announced in the summer. We made our big choice for this Budget four months before it was delivered, and that was the right decision, he says.

The NHS will shortly publish a 10-year plan setting out how it will spend the money, but here is a preview. Mr Hammond announces a new mental health crisis service with support in every major A&E department, children’s crisis teams, more mental health ambulances and a 24-hour crisis hotline.

Hammond announces some extra money for a few areas in advance of next year’s spending review.

Firstly, for local authorities, building on £240m already promised for social care, he’ll make available another £650m for English authorities, and an extra £84m over the next four years to expand children’s social care programmes.

Extra funding for defence

On defence, Hammond promises an extra £1bn for the MoD to cover the remainder of this year and next – to boost cyber capabilities, anti-submarine warfare capabilities and the ongoing work to replace the submarines that carry the UK’s nuclear deterrent.

He also promises more money on counterterrorism: an extra £160m of CT police funding for 2019-20.

Borrowing and growth forecasts in charts

Keith Fray, the FT’s head of statistics, has put together these two charts based on the new OBR forecasts:

Now on to some community largesse. Mr Hammond will donate £10m to an armed forces trust, to support veterans with mental health needs. He will also fund grants for village hall refurbishment projects. And he will spend £1.7m on schools education to mark the 75th anniversary of the liberation of the Bergen-Belsen concentration camp.

Extra £400m for education

We’re moving on to schools, where budgets have been stretched. He announces a £400m in-year bonus to help schools “buy the little extras they need” – a one-off capital payment, given directly to schools. And finally, £420m for pothole-filling!

New measures to increase productivity

Ending austerity is not just about public services, but real wage growth and leaving more money in people’s pockets, Mr Hammond says. Britain is exploiting a new wave of scientific discovery. Investing in infrastructure will help us manage change, not hide from it, he says. For more detail of his many measures to tackle productivity, see the Budget Red Book, he says. The list includes £1.6bn for the industrial strategy, £150m for fellowships to attract international researchers. Total public investment will grow by 30% to its highest sustained level in 40 years, he says.

PFI is dead

Hammond points out that even though Labour hates PFI, 90% of PFI contracts were agreed by the Labour government.

Hammond says existing contracts will be honoured, but adds: “the days of the public sector being a pushover must end”. There will be a centre of excellence to manage these contracts in the public interest. He also says he will never sign a PFI contract. The government will abolish the use of PFI and PF2.

Britain is open for business, the chancellor says. The annual investment allowance will be raised to £1m for two years. He provides targeted relief for intellectual property rich businesses M&A. He will increase direct lending for exporters, open ePassport gates to US, Canadian and Australian passport holders, extend start-up loans funding to 2021, and extend mentoring and support allowances for benefit claimants to get their businesses off the ground.

Tweak to apprenticeship levy

Hammond announces some tweaks to the apprenticeship levy (loathed by many businesses) – the contributions that small companies will have to pay towards apprentices will be cut from 10 to 5 per cent.

On to housing. Capital gains tax – from April 2020 we will limit lettings relief to properties where the owner is in shared occupany with the tenant, Mr Hammond says.

He rebuffs calls to abolish entrepreneurs’ tax relief; he will retain it, but extends the minimum qualifying period from 12 months to two years.

On VAT registrations, small businesses will be pleased to hear the turnover threshold will remain unchanged for two years.

Employment taxes – we will apply the recent public sector changes to the private sector as well, the chancellor says. We will delay the changes until April 2020 and only apply them to large and medium sized businesses.

Tax on tech giants

Hammond moves on to one of his favourite topics: tax in the digital age. He says progress is “painfully slow” on negotiating a new international tax agreement on digital platforms. So the UK will introduce a “UK digital services tax” – a tax on revenues of UK revenues of specific tech giants (not tech start-ups). This is not an online sales tax on goods ordered over the internet – it will only be paid by companies that are profitable and generate at least £500m in revenues on the business lines in scope. The tax will raise about £400m a year. But if an international solution emerges, the UK might adopt it instead of this UK tax.

In an excellent dig, he says he’s looking forward to a call from Nick Clegg, who has just taken a job with Facebook.

Clampdown on tax avoidance

In the past eight years we have secured £185bn that would otherwise have gone unpaid, and today we have another package of tax clampdowns to raise £2bn over the next five years, the chancellor says. We will make HMRC a preferred creditor, end the practice of purchasing services through overseas branches and routing services through offshore companies, and introduce a PAYE restriction for small and medium sized companies.

Help for high streets

Because high streets are suffering due to online shopping, there will be a £675m “future high streets fund” – to support councils to draw up plans for the transformation of their high streets.

On business rates (another bane of the high street) Hammond says for the next two years, for all retailers in England with rateable value of £51,000 or less, he will cut their business rates bill by one-third.

The chancellor extends discretionary business relief to public lavatories, including those that are privately owned. This is the only announcement in his Budget which has not leaked, he jokes.

More money for housing

Hammond announces another £500m for the housing infrastructure fund, up to £1bn of British Business Bank guarantees to housebuilders, and funding to empower up to 500 neighbourhoods to allocate or permission land for housing for sale at a discount to local people.

Sterling is slipping, despite the upgraded economic forecasts, our head of FastFT Adam Samson reports. Sterling was recently down 0.08 per cent against the euro at €1.1234. It was off 0.26 per cent against the US dollar at $1.28 — trading within the day’s range.

There have been an awful lot of spending announcements sprinkled around by Hammond so far, and not much on tax (except the Faangs Tax)…

Mr Hammond is announcing a series of urban infrastructure measures, including funding for buses, university enterprise zones and discovery zones, money for Northern Rail and a self-employed skills pilot in Manchester. There will also be more funding for the Oxford-Cambridge rail link and an improvement to London’s Docklands Light Railway.

The Scottish and Welsh governments and the Northern Ireland Executive also get spending increases.

City growth deals include Belfast and North Wales.

Belfast will get £2m towards its city centre recovery after a serious fire. There is a £300m schools projects in Northern Ireland for cross-community education, and a working group on devolution.

For the fishing industry, £12m over three years on technology and safety measures.

Tax on plastics

Hammond attacks plastics, “convenient for consumers but deadly for our oceans”. There will be a new tax on the manufacture or import of plastic packaging that contains less than 30% recycled material. He doesn’t say how big the tax will be, or how much money it will raise. He will consult on the timetable. He has also looked at introducing a levy on plastic coffee cups, but concluded a tax in isolation “would not at this point deliver a decisive shift”. But he warns the drinks industry that he is watching…

Duty freeze on beer, cider and spirits

Mr Hammond says that many people are feeling pressure on their household budgets. He can help with the cost of living. Firstly, duties – fuel duty will be frozen for the ninth successive year. The tobacco duty escalator will continue at inflation plus 2%. He will freeze beer and cider duty for the next year. He also freezes duty on spirits. Everyone can afford to toast the recent birth of Scottish Conservative leader Ruth Davidson’s baby son, Mr Hammond says, raising cheers from colleagues.

Remote gaming duty will rise to 21% to match the reduction in fixed odds betting terminal limits. The new 26-30 railcard will be introduced by the end of the year.

There is also a package of measures for affordable credit and support for credit unions.

Universal Credit is here to stay

On Universal Credit – the huge reform to welfare benefits being rolled out in the UK now to much controversy – Hammond sticks to the government line that it’s a “long overdue and necessary reform”. But he says he recognises concerns about two issues:

1) The implementation. On this, he promises extra measures worth £1bn to aid the transition over 5 years.
2) Concerns about the rates and allowances in the UC system. He announces he will increase work allowances by £1,000 per year. This will cost about £1.7bn. It’s a big backtrack on the cuts to the generosity of UC which were announced by George Osborne.

But he concludes: UC is here to stay, and we’re putting in the funding to make it a success.

Tax thresholds raised

Improving wages for those in work is core to my mission as chancellor, Mr Hammond says. The national living wage will rise from April by 4.9% to £8.21, handing a £690 annual pay rise to the average full-time worker. We accept the Low Pay Commission’s recommendation on above-inflation increases for young people, he adds. Next year we will be ambitious about giving the Low Pay Commission a new remit beyond 2020, so we will consult in the coming months, to ensure we get this right.

We want working people to keep more of the money they earn. The personal allowance will rise to £12,500 and the higher rate threshold to £50,000 by April 2019 and then we will index them both in line with inflation. That delivers our manifesto commitment one year early – I didn’t come into politics to put taxes up, Mr Hammond says.

We’re on the final summary. We’ve turned the corner, Hammond says. We’re embracing change. “Austerity is coming to an end, but discipline will remain,” he says (twice) – “and that is the clear dividing line in British politics today.” A final few jabs at the Labour opposition and he declares “we are at a turning point in our history, we should go forward not backwards”. And with that, he sits down. That was a fairly long speech – just over an hour.

The chancellor was on his feet for just over an hour. Labour will shortly give their response to his announcements. Here’s a reminder of some of the key policy measures that Mr Hammond has set out:

- A new digital services tax aimed at big tech companies
- Plans to end the use of PFI deals
- An extra £1bn to ease rollout of Universal Credit
- A tax on plastic packaging
- The national living wage increased by 4.9% to £8.21
- Help for struggling high streets
- Business rate cut for small businesses
- Confirms extra £20bn funding for NHS to 2022-23
- Extra £1bn for defence over next 2 years
- Extra £500m set aside to prepare for no-deal Brexit preparations
- Duty on beer and spirits has been frozen for a year; duty on fuel frozen for the ninth successive year; tobacco duty rises by inflation plus 2%
- Universal Credit is here to stay
- Income tax thresholds have been raised a year earlier than originally planned

Corbyn: Austerity is not over

Labour leader Jeremy Corbyn is responding to Philip Hammond’s Budget. He is arguing that austerity is not in fact over, and lists a number of examples of underfunded public services and social problems. Today’s announcement is a drop in the ocean, he says.

The gap between those at the top and the rest is not closing, it is growing, Mr Corbyn says – chief executives’ pay is very high in comparison to those of their workers. The very lowest earners and insecure workers will not benefit from the increase in the tax threshold and are suffering from the universal credit cuts, he says.

Here’s the verdict from the Office for Budget Responsibility, the official fiscal watchdog: “Government spends fiscal windfall,” it says.

Bouyant tax receipts and an improved outlook for employment have delivered the Government a significant fiscal windfall since March, sufficient to deliver its objective of a balanced budget by 2025. But this had already been swallowed up by the Prime Minister’s promise of more money for the NHS in June, to which the Chancellor has added a further near-term tax and spending giveaway. This leaves the medium-term outlook for government borrowing little changed since March.

The markets have taken the Budget in their stride; sterling is little moved and the share prices of major publicly listed PFI contractors did not move on Mr Hammond’s announcement that he would not sign any new PFI deals.

Moody’s warns over UK debt levels

Sarah Carlson, senior vice-president and lead sovereign analyst for the UK at credit rating agency Moody’s, said the Budget “confirms our expectation that we won’t see a material reversal in the UK’s high public debt levels for some time”.

“Elevated debt levels will continue to be a credit challenge for the UK for the foreseeable future,” she said. “Social and political pressure to increase spending will remain high, while the ongoing Brexit negotiations present a high level of uncertainty over the economic outlook.”

The OBR said it was unable to certify the fiscal cost of the government’s planned universal credit measures, because of “repeated failures to observe the
forecast timetable that was initially agreed between the Treasury and ourselves”. That made the OBR’s job “unusually challenging”, it said.

The OBR’s forecasts assume “a relatively smooth exit from the EU next year” but “there remains no meaningful basis on which to predict the outcome of the current negotiations over the relationship between the UK and the EU after Brexit”.

“A disorderly [exit] could have severe short-term implications for the economy, the exchange rate, asset prices and the public finances,” the OBR added. “The scale would be very hard to predict, given the lack of precedent.”

No more money for prisons

One big apparent omission by the chancellor in his speech was a widely expected announcement aimed at addressing the mounting crisis in prisons. As the FT’s Public Policy Correspondent, Helen Warrell, wrote last week, the prison service lost a quarter of its budget and nearly 30 per cent of its staff during the peak years of austerity between 2010 and 2015.

Higher council borrowing for housebuilding to crowd out private sector, OBR says

The government’s recent announcement that it will relax restrictions on councils’ borrowing powers in order to enable them to finance more housebuilding will “partly crowd out some private sector housebuilding”, according to the OBR.

The lifting of the housing revenue account borrowing cap will result in councils building 20,000 homes, the OBR estimated, but only 9,000 of them would be a net addition to Britain’s housing stock – the remainder would be “offset
by lower private sector housebuilding, including by housing associations”.

For those of you wanting to delve into the small print. Here’s the link to all the Budget documents

Our liveblog is wrapping up now; thanks for joining us on Budget day 2018. You can follow the rest of our coverage on our Budget page, here.