Philip Hammond’s Budget was a ‘gamble’ and taxes and borrowing could have to soar to pay for his £100billion of promises, the respected IFS think tank warned today.
The snap analysis of the Budget suggested there is a one in three chance the huge upturn in the Government’s finances could be reversed.
This would leave the Chancellor the choice of either trying to dramatically raise taxes or borrowing billions extra to keep his promises.
IFS chief Paul Johnson said the prospects of Mr Hammond meeting his target for getting the government’s books in the black by 2025 were now ‘for the birds’.
What the OBR gives this year it can easily take away again next year. If it does then the Chancellor is going to have painted himself into a bit of a corner,’ Mr Johnson said.
Mr Hammond was shown around the factory belonging to Eminox, which manufactures high-performance stainless-steel exhaust and emission control systems
The IFS think-tank warned Philip Hammond’s Budget was a ‘gamble’ and borrowing could have to soar to pay for it. The Chancellor visited a factory in Gainsborough today (pictured) as experts sifted through the financial package
The IFS analysis pointed out that the path for borrowing has changed sharply since 2016
‘He’s going to struggle to reimpose austerity having announced its end.
‘Could he resort to sizeable tax rises? More likely he would just allow borrowing to persist at a higher level.’
What was announced in Philip Hammond’s Budget?
Here are some of the spending pledges announced in Philip Hammond’s 2018 Budget:
An extra £25billion-a -year will be pumped into the NHS by 2023.
It includes a £2bn a year mental health fund to pay for every A&E and school to get a mental health unit.
An extra £500million will be pumped into planning for a no deal Brexit – rising the total from £1.5bn to £2bn. Mr Hammond also said the Spring Statement next year could be turned into a full Budget if there is a no deal Brexit.
A £250million fund to install super-fast broadband across Britain’s countryside
Business rates will be cut by nearly a third for half a million small retailers ans ministers try to save Britain’s high streets.
England’s roads will get an extra £28.8billion, while a pothole fund of £420 million will be set up and fuel duty will be frozen for the ninth year in a row.
The Chancellor announced that PFI will be scrapped as he puts an end to Labour ‘s legacy
The Treasury is giving a one off £400m payment to schools to help them buy equipment. This amounts to £10,000 for every primary and £50,000 for every secondary.
The MoD will get an extra £1bn to help Britain’s Armed Forces following dire warnings over a £20bn blackhole in their finances over the next decade.
Britain will splash out £60million on planting 10 million trees across England.
The self-employed will have to pay national insurance contributions for the first time. The tax raid will prove unpopular with white van men, but could bring in £1.2bn year by 2023.
Cutting red tape:
Weddings will be allowed to take place in pubs, hotels and restaurants as Philip Hammond slashes red rape.
Mr Johnson said the Chancellor would be ‘thanking his lucky stars’ the improved forecasts from the OBR allowed him to cover lavish new spending on the NHS without tax increases or higher borrowing.
He said: ‘Who would have believed a Treasury forecast which just happened to allow more than £20billion of additional spending on the NHS without either any tax increases or any effect on forecast borrowing?
‘And that really is the story of yesterday’s Budget. Lots of extra money for the NHS ‘paid for’ by better borrowing forecasts.’
Mr Johnson said the improvements that fuelled Mr Hammond’s ‘largesse’ came from a series of ‘small scale improvements’ in expected revenues from different taxes.
He said: ‘They keep coming in a bit better than expected and the OBR has altered its forecasts to reflect that.’
He warned while many of the changes are ‘quite big for this year’ they are of a ‘boringly average magnitude into the medium term.’
Mr Johnson said the decision to target the public spending surge on the NHS meant there was little money for everything else.
He said the boost for the NHS was a ‘remarkable increase’ compared to 2010 but that ‘other public services have been paying the price’ – adding sustaining the rising health budget would have to mean higher taxes in future because it will soon account for 38 per cent of all public spending.
And he added: ‘As for health, despite its favoured status there is nothing particularly historic about these announcements.
‘Depending on exactly what you are measuring, spending is rising by between 2.6 per cent a year and 3.4 per cent a year.
‘That compares with average increases of 3.7 per cent a year over the NHS’s entire history and 6 per cent a year over the period of the last Labour government.’
Mr Johnson said the £2billion extra for universal credit was just about enough to make spending higher than the system it replaces.
But he warned that by design the new benefit has ‘millions of losers’ and that around a third of eligible households will be £1,000 a year worse off than under the legacy system.
Mr Johnson said yesterday’s Budget proved that ‘any idea there is a serious desire to eliminate the deficit by the mid 2020s is surely for the birds’.
He added: ‘One might also question the Chancellor’s claim to be taking a balanced approach.
The House of Commons was packed to the rafters to hear the Chancellor deliver his pre-Brexit Budget yesterday afternoon (pictured)
‘When the fiscal forecasts got worse in 2016 and 2017 he didn’t cut spending or increase taxes in response, he accepted more borrowing.
‘But now they are improved he has increased planned spending and maintained expected borrowing.
‘Keep doing that and the deficit can only go one way.’
Corporation tax soars in the wake of cuts to encourage business
Corporation tax receipts have soared billions above expectations since controversial cuts were brought in, Budget papers reveal.
Revenues are £2billion higher this year and the Office for Budget Responsibility predicted an £11.8billion improvement on earlier forecasts over the next four years.
The Corporation Tax rate has been cut by the Tories from 20 per cent in 2015 to a planned rate of 17 per cent by 2020 – one of the lowest in the G20.
Corporation Tax is levied on the profits of larger companies.
Labour has fiercely opposed the cuts, claiming it is a hand out for wealthy corporations at the cost of benefits.