Autumn Budget 2017: An Edelman Briefing by Edelman

AUTUMN BUDGET N O V E M B E R 2017

FISCAL PHIL LIVES TO FIGHT ANOTHER DAY WILL WALDEN, MANAGING DIRECTOR PUBLIC AFFAIRS

CRAIG WOODHOUSE, DIRECTOR PUBLIC AFFAIRS

Fourteen years ago today, with failure ringing in the ears, the seconds ticking down, and hostile crowds on all sides, he produced a rabbit out of a hat and everything changed.

Allies of the Chancellor described the pressure on him to get this Budget right as “ludicrous”. The devil is always in the detail, but on first glance it looks as though Philip Hammond might just have managed it.

No not Philip Hammond. Jonny Wilkinson of course. Only back then you could argue that Wilkinson's last minute World Cup winning drop goal was nothing compared to the task ahead of our beleaguered Chancellor today.

He had a headline-grabbing “rabbit” in his hat to appease the baying Westminster journalists who are so keen to see him fail, which took the shape of scrapping stamp duty for 80 per cent of first time buyers.

Back then the captain hadn't just blown an extensive lead, there wasn't about to be a fundamental shift in the relationship with the rest of European or indeed world rugby, team productivity was rising not falling, and on the sidelines there wasn't a bespectacled stand-in jumping up and down telling everyone he was the better option to deliver victory.

He sounded just about positive enough about Brexit to appease Eurosceptic Tories, talking of the “new opportunities” it would bring as he announced an extra £3 billion to prepare for leaving the EU. Attempting a Churchillian flourish, he told them: “No one should doubt our resolve!”

Will we hear more of Michael Gove and succession in the days ahead perhaps? Remember the detail is often in the nitty gritty of the red book, and the holes often emerge within days rather than hours. Never has Hammond needed his 'spreadsheet Phil' reputation for detail to come good more than in the days ahead. The Chancellor has just delivered his first Autumn-only Budget nine months after his Spring Budget unravelled so spectacularly over plans to raise national insurance contributions for the self-employed. Today he faced anxious calls over housing, public sector pay, and business rates amongst many competing demands. His hostile audience included the City, the Westminster Lobby, Jeremy Corbyn's resurgent Labour opposition, and febrile MPs across the war-ravaged backbenches of his own party. And all of it framed by Brexit, the biggest unknown of all. Given what's happened since June 8th, given all the above, it's remarkable the Tories are still polling at about 40% and still lead on economic competence. After today will that have changed? He promised a Budget for Brexit Britain 'fit for the future'. So how did he do? My colleagues Craig Woodhouse, Lucy Thomas, Pawel Swidlicki and Harry Spencer are about to tell you...

He made some significant announcements about preparing Britain’s economy for the challenges of the technological revolution ahead, including £500 million for a range of initiatives including Artificial Intelligence, 5G and full fibre broadband, an extension of the R&D tax credit, and a boost for maths teaching – fitting the Government’s narrative of “building a Britain fit for the future”. He tried to keep hard-pressed voters on side with freezes to fuel alcohol and air passenger duties, and unveiled the latest increases to the tax-free income tax personal allowance. He reached out to small businesses by sparing them changes to the VAT threshold, and bringing forward a change to how business rates are calculated. He announced extra money for the NHS, and a £1.5 billion series of changes to the fiascohit Universal Credit. And he ended it all with a £44 billion package to help fix Britain’s broken housing market.

PUBLIC AFFAIRS

The Chancellor’s Budget speech, littered with clunky jokes and masking some gloomy economic numbers, is probably enough to stave off calls for his sacking. But there can be little doubt it is not the Budget speech he would have wanted to give. It was full of signs of pressure from elsewhere: fixing Britain’s housing market is a passion of Number 10. Banging the drum for Brexit is definitely not Hammond’s natural territory. The Chancellor admitted he had been cajoled into several announcements for Scotland by the collective power of the 13 Scottish Tory MPs. Clever Labour politics pushed the Tories into sorting out Universal Credit, while the entire premise of trying to “win back” young people – exemplified by the stamp duty cut and a new cut-price rail card for 26 to 30-year-olds – is a response to Jeremy Corbyn’s unexpected general election success. This wasn’t a game-changing Budget, but more a response to the fact the game changed with June’s general election result. Unless there are some howlers hidden in the small print of the Red Book, “Fiscal Phil” will live to fight another day. Whether he is happy with his day’s work is another matter entirely.

AUTUMN BUDGET N O V E M B E R 2017

MAJOR POLICY ANNOUNCEMENTS Hammond was open about being the most-lobbied man in Britain from Scottish MPs to business groups, all asking for goodies in the Budget. There were clear winners and losers. Pressure for the Conservatives to find some eye-catching measures for younger voters led to a shock announcement to scrap stamp duty for first time buyers and an extension of the young person’s rail card. Calls from businesses to ease the burden of rising rates were also heeded, with a change to their uprating, switching from RPI to CPI in April 2018, two years earlier than planned. The home-owning dream: Building and buying This was a house-buyers’ Budget. The rabbit from the hat was saved until the end when the Chancellor announced that first-time buyers will no longer pay stamp duty on homes up to £300,000, and in London for properties up to £500,000 no duty on the first £300,000. Other measures to ease the first step onto the property ladder were a pledge to build 300,000 new homes per year by 2022. In addition, there will be £44bn in capital funding loans and guarantees (over five years). A country fit for the future – embracing technology A repeated theme was of the Conservatives pledge to embrace the future, while others (in the Party opposite) choose to reject it. In post-Brexit Britain, our place at the forefront of a global technological revolution will be key. This came to life in the form of pledges to increase investment in artificial intelligence, electric cars and to unlock investment in scale-up tech companies. Measures included: £500m Government investment in a series of initiatives including AI, 5G and full fibre broadband; £2.5bn public seed money in a British Business Bank fund; the publication of an action plan to unlock over £20bn in scale-up businesses. There was a focus on the future of cars (electric) and a cheap joke at the expense of Jeremy Clarkson, vocal opponent of driverless cars. Announcements included: £400m investment in charging infrastructure for electric cars and £40m in charging R&D. There were also disincentives for diesel cars, including increased VED rates for diesel cars not meeting environmental standards. Taxing the Digital Economy With pressure for multinational digital firms to pay their share of tax, there were several announcements to seek to redress the balance including a position paper on the tax challenge of the digital economy and potential solutions. In addition the Government will apply income tax to royalties relating to UK sales, when those royalties are paid to a low tax jurisdiction, and make online marketplaces jointly liable for VAT, so not only the seller is responsible. Business rates: easing the pressure on small businesses There was good news for small businesses, with the VAT threshold kept at £85,000 despite pressure to bring it down. And on the issue of business rates, campaigning by the British Chambers, CBI and others paid off, as the planned switch from RPI to CPI was brought forward by two years to April 2018. In addition, revaluation of rates will take place every three years instead of five. Infrastructure Investment and Productivity Productivity, infrastructure and R&D were also given a boost. Given the OBR’s gloomy news on productivity problems, this is perhaps not a surprise. Details included: a yearlong extension of the National Productivity Investment Fund, reaching over £31bn to upgrade infrastructure; a further £2.3bn for investment in R&D, and an increase on tax credit to 12%. Major investment opportunities also included: Five new locally agreed Garden Towns in areas of demand pressure and the Cambridge-Milton Keynes-Oxford corridor – including a Housing Deal with Oxfordshire to deliver 100,000 homes by 2031.

LUCY THOMAS, DIRECTOR, PUBLIC AFFAIRS PAWEL SWIDLICKI, POLICY ANALYST, PUBLIC AFFAIRS HARRY SPENCER, ACCOUNT MANAGER, PUBLIC AFFAIRS LABOUR’S RESPONSE Heading into the Budget response, Jeremy Corbyn will have been aiming to accomplish two related goals – to set out his own alternative agenda for economic policy, and to successfully attack the Government’s record. On this basis, the Leader of the Opposition can reflect on a largely successful speech. In many ways, Philip Hammond is the ideal foil for Jeremy Corbyn. While the Chancellor is generally seen as a cautious politician, and largely delivered a cautious Budget, Jeremy Corbyn’s economic agenda is defined by intervention in the economy, offering the contrast Labour wants. The Leader of the Opposition largely successfully drew out that contrast. He focused on Universal Credit, calling for a freeze to its introduction. He also, as expected, focused heavily on challenges facing public services due to continued spending limits – particularly criticising the impact on social care and education. Jeremy Corbyn pointedly noted that in a number of instances, the Government appeared to have borrowed from Labour’s manifesto – and on business rates and housing he even suggested the Government goes the whole way. The implication was clear, that it is Labour driving the policy agenda, even while out of Government. Overall, it was an impassioned speech which delivered precisely the message intended – but whether his response, or anything in the Budget itself, will change the minds of a deadlocked and divided public is unclear.

BUDGET IN NUMBERS

>2%

Growth in each of the next five years is now estimated to be less than 2%, after productivity estimates were reduced – this will act as a major constraint on future spending

£44bn

Set aside in capital funding, loans and guarantees over five years to deliver 300,000 net new homes per year by the mid-2020s.

£300k

Properties worth this amount or less will now be exempt from Stamp Duty to first time buyers, as will the first £300k on properties up to £500k.

£3bn

Set aside in Brexit contingency planning for the event of a No Deal Brexit, to be spent over the next two years.

WINNERS

LOSERS

PROSPECTIVE HOMEBUYERS

BIG BUSINESSES

In a major surprise, the Chancellor announced Stamp Duty would be abolished on all properties worth £300k or less for first time buyers – and reduced duty for properties up to £500k. He also announced £44bn would be provided in capital funding, loans and guarantees to the housing market.

Though little noted in the Speech, the Chancellor announced the a freeze on the indexation of Corporation Tax – a major source of revenue for the Government in future.

ENVIRONMENTAL GROUPS Not generally regarded as a Green politician, the Chancellor nonetheless backed further taxes on diesel cars and announced the revenue would be reserved for a £220 million Clean Air Fund to improve air pollution.

BIG HOMEBUILDERS While house building was a big focus of the Budget, shares in big house builders plunged on news that Oliver Letwin will be tasked with reviewing “land banking” practices – and potentially recommending legislation to tackle the issue.

GRADUATES

DIESEL DRIVERS

As previously announced, the Chancellor confirmed delivery of a previous pledge to raise the threshold at which graduates have to repay tuition fees to £25,000 – and this will rise with inflation in future.

Drivers of older diesel vehicles are hit with a rise in Vehicle Excise Duty for diesel cars that don’t meet the latest standards and an additional 1% increase in the diesel supplement in Company Car Tax.

TECH FIRMS

Overall, the Budget had a substantial next expenditure, and the date at which the Government expects to eliminate the deficit has been pushed back to 2025. Delivering a net spending Budget directly after an election is unusual, and perhaps reflects political weakness.

The Chancellor announced £500m in a range of initiatives to boost the Tech sector, including investment in 5G, fibre broadband and AI.

BALANCED BUDGETS

STAKEHOLDER REACTION LAURA KUENNSBURG, BBC

RUPERT HARRISON, FORMER ADVISER TO GEORGE OSBORNE

Detail in OBR book found by eagle eyed @Alison_McGovern is that main gainers from change will be people who already own property, because it will push up prices

Philip Hammond successfully exceeds expectations. No obvious trip-ups. Job done I'd say

JAMES FORSYTH, THE SPECTATOR

ISABEL HARDMAN, THE SPECTATOR

Neither enough money nor enough planning reform in this housing plan. Simply doesn't go far enough

Stamp duty announcement a big deal. Though clear that May won on planning reform as there ain’t nothing ambitious - unless there is clever small print.

JAMES KIRKUP, SOCIAL MARKET FOUNDATION

TORSTEN BELL, RESOLUTION FOUNDATION

The real story of the Budget is weak productivity and a growth downgrade that will mean the UK economy is £49 billion smaller than it could have been by 2021/22. That's bigger than Brexit, in more ways than one.

So Budget in short is 1) productivity disaster means slow growth 2) public finances much worse as a result 3) Chancellor is sucking that up rather than trying to keep borrowing on track 4) welcome broad policy blizzard on housing