Labour’s first for 14 years, this was a big Budget in all respects, with big tax rises and big borrowing. Taxes are going up by £40bn, taking the total tax burden to over 38% of GDP, the highest ever. And borrowing is rising by £28bn – and not all of that is for investment; it also includes day-to-day spending.
Forecasters are predicting a cut in interest rates soon, but after that, the extra borrowing means rates will stayer higher for longer than would otherwise have happened, which will be unwelcome news for the 31% of East Hampshire households that have a mortgage. Our local economy is all about small businesses.
The Chancellor raised the prospect of business rates reform in the future. But before that, business rates relief for hospitality and retail is to be extended but at a much lower level: down from the current 75% to 40%. For pubs, there was a (very) small offsetting change – a penny off draught beer tax.
The biggest single tax rise is the increase in employer National Insurance Contributions (NICs) and the reduction in the threshold at which it’s paid. There has been a lot of debate about whether this ‘counts’ as a tax on working people – but economists agree that the effect of employer NICs ultimately gets felt by workers, either in the form of lower wage growth, or fewer jobs being created. But there was also a measure which will mitigate the effect for East Hampshire’s smallest businesses: the ‘employment allowance’ is going up to £10,500.
For our key farming sector – 80% of East Hampshire land is agricultural – there was very bad news, with the Chancellor cutting inheritance tax relief for family farms, which will make it harder for farmers to pass their holdings onto their children and grandchildren. The National Farmers Union has said it feels “incredibly let down” by changes to Agricultural Property Relief and Business Property Relief, having received assurances this wouldn't happen. As they say, APR is not a ‘loophole’, it is a policy that was designed specifically to protect family farms from being sold and broken up. As the Opposition, we will campaign to stop this Family Farm Tax.
One piece of good news, especially important in rural areas like ours, was that the fuel duty freeze is to be retained. I had joined the Fair Fuel campaign’s calls for this. East Hampshire has an above-average number of pupils at independent schools. We have been campaigning to stop the imposition of VAT on fees, but in the Budget the government confirmed they intend to plough on. They did say they would make some offsetting changes for military families, of which we have a sizeable number locally. I will continue to call for further exemptions – or preferably for the plan to be dropped altogether.
You have to look not only at what is in the Budget, but what isn’t.
Sadly there was no reprieve on Winter Fuel Payments, which currently go to 26,000 in East Hampshire. And there was no mention in Rachel Reeve’s speech of Child Benefit, but buried in the accompanying documents it says the government will not proceed with plans Jeremy Hunt set out in March that would allow more families to get the payment. The biggest single factor in household income and reducing inequality is having low unemployment.
The National Living Wage, introduced by George Osborne, has been a very successful policy and massively reduced the proportion of people on low pay. It is now to rise to £12.21 and the lower level for 18-20 year olds is to come up closer to the full rate. Of course, this itself is good for employees but there is a worry that, when combined with the increase in employer NICs and the proposed new labour laws, that there could be a depressive effect on employment – this is something that will need to be watched very closely.
Perhaps the most surprising thing is that, after all the talk about economic growth (which, rightly, the Chancellor said is the only way to sustainably increase both public spending and living standards), the Budget is predicted to actually cut growth after an initial borrowing-driven boost.
Overall, this is a risky Budget which will see everyone paying more tax, and independent commentators are forecasting there may be more tax rises coming. On the plus side, the starting point is one of low unemployment, inflation back to target and growth had returned. We shall now have to see how the economy performs.
Listen to my take on the Budget on LBC in a panel with Jeremy Corbyn, Sir Rocco Forte, Stephanie Flanders and me, with Iain Dale: Cross Question with Iain Dale 30/10 | Watch again - LBC
