The Chancellor of the Exchequer, Philip Hammond, presented the 2018 budget to the House of Commons on 29 October, stating that “the era of austerity [is] finally coming to an end”. The Office for Budget Responsibility (OBR) described it as “the largest discretionary fiscal loosening” since the OBR’s creation in 2010. The larger fiscal impact was on the spending side of the budget, and by far the largest component of this was increased funding for the National Health Service, first announced in June. On the taxation side, the largest effect was from increases to the income tax personal allowance and higher rate threshold.
The background economic information from the OBR slightly upgraded shorter-term forecasts of economic growth and reduced estimates of unemployment. It also noted a substantial increase in tax receipts. This combination allowed the Chancellor to carry out the “fiscal loosening” without raising taxes overall—although one consequence, according to the Institute for Fiscal Studies (IFS), is that the target to produce a budget surplus by 2025 would not be obtainable.
There were also interactions between the budget and the form of the Brexit deal (or no deal). The Chancellor kept some funds which could be used to inject further money into the economy in the event of a shock to the economy arising from a disorderly exit. He also claimed that there would be a “deal dividend” if the exit was smooth, although the IFS has challenged this.
There was a variety of reactions to the budget, with the IFS describing it as a “gamble”, the Institute of Economic Affairs labelling it “fiddly” and the Resolution Foundation stating that it would “significantly ease, but not end, austerity”. Several commentators also regretted the absence of any longer-term plans to resolve the mismatch between expectations of public services and the current tax take, particularly given the future costs of the ageing population.
