UK Budget: 7 Perspectives on Healthcare, Housing, Taxation, & “Austerity”

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UK Chancellor of the Exchequer Philip Hammond and Prime Minister Theresa May

“This Budget means more austerity”


7 University of Birmingham academics review Wednesday’s UK budget announcement, which projected five years of little growth amid departure from the European Union — but also claimed to address pressing economic and social needs:

See also Britain’s Latest Budget: More to Do? From Universal Credit to Healthcare to Investment


Economic Outlook: Austerity — Prof. Kimberley Scharf

The government’s posturing of being fiscally responsible, its fiscal rules, its minority government, and Brexit have all combined to create a dense, foggy swirl of budgetary pressure for the Chancellor.

Philip Hammond just reaffirmed his commitment to cut the deficit, currently about 3% of national income, to below 2% by 2020-21. The Office for Budget Responsibility has forecas that the deficit will be reduced to 1.3% of national income by 2020-21 and so the government seems to be on track. But everyone should be clear about what this commitment means. It means more austerity, whatever the ultimate detail, the government must dress up in sheep’s clothing a clever budget of spending cuts and tax rises that will drastically reduce the difference between what it earns and what it spends.

This will be made more difficult as the economy faces downgraded productivity growth estimates, which will slow growth — the OBR have downgraded growth forecasts to 1.5% in 2017 from the 2% estimates that were made in March, and wages. Growth estimates have also been cut to 1.4% in 2018 and 1.3% in 2019 and 2020, after which they will experience modest increases to 1.5% in 2020 and 1.6% in 2021. Exacerbating this will be the continuing economic uncertainty created by Brexit and pressure from opposition and public sector employees to increase public sector spending, which has seen cuts of almost 40% to some government departments.

The Budget announcement and debate will continue all afternoon and analysts at the Institute for Fiscal Studies will spend the next day cranking the numbers so that we can more clearly see how much the spending will cost and how much the tax changes and other incentives will raise, and who will be the losers and who will be the winners. I am looking forward to seeing those numbers and to seeing whether commitment to austerity is still a politically viable strategy for this minority government.

“Healthcare Crisis Deferred, Not Averted” — Prof. Judith Smith

On the face of it, the National Health Service has done better than it might have expected from the autumn Budget settlement. Compared with the March Budget, when there was effectively nothing for the NHS, the Chancellor has promised £350 million to help ease pressures on NHS services this winter, then an extra £1.6 billion for 2018-19 and £900 million in 2019-20. In addition, there is to be new capital funding which will help ease some of the very pressing issues related to maintaining and modernising outdated buildings and equipment.

This new money for revenue, whilst offering some welcome relief, is however barely half the amount — £4billion a year – that expert commentators and the NHS itself calculate is needed if the service is to stand a chance of meeting targets for waiting lists, access to GP appointments, and being assessed promptly within A&E departments. The NHS is on its knees as ever more people turn up at A&E departments and in general practice. What is more, several years of deep cuts to social care have taken a severe toll and frail elderly people, vulnerable families, and those living with mental illness struggle to get the support they need to live at home.

For the NHS, this Budget settlement represents more of what the Comprehensive Spending Review offered – a crisis deferred not averted. New money is insufficient to address deep-seated problems, and the Chancellor is linking it to achieving waiting list and other targets that are already proving way out of reach for the NHS. Factor in that the Budget made no mention whatsoever of social care, and the picture is one of a health and care system being given some support to limp on towards a worrying and uncertain future.

Housing Disappointment — Prof. David Mullins

After many years of watching and waiting for a budget headlining measures to address what the even the latest Housing White Paper referred to as “a broken housing market”, the general reaction must be one of disappointment.

Home Ownership and Housing Supply

As usual the main thrust was on sustaining home ownership despite the purported post-Grenfell turn towards social housing. Here the headline measures intended to boost housing supply to 300,000 a year remain unconvincing, despite a welcome pressure on land hoarding by developers (as proposed by Labour Party leader Ed Miliband several years ago); a £1 billion land assembly fund; £5 billion infrastructure fund; and £8 billion of guarantees for private housebuilders, small and medium enterprises, and purpose-built rental housing. The stamp duty holiday for first time buyers seems likely to fuel house price increases rather than easing access. Furthermore there is precious little attempt to steer supply towards the yawning gap for more affordable homes.

Housing Allowances and Private Tenants

The most positive announcement for housing tenants was the U-turn on Universal Credit implementation to abolish the 7-day period with no entitlement to benefit and to continue to pay Housing Benefit for two weeks after a Universal Credit claim is made. This will ease the misery for claimants and reduce rent arrears issues for landlords, but there is much more to be done.

There was also welcome recognition that local housing allowance caps are too low, as our recent research on Social Renting Agencies in Birmingham documented. But it is unclear why help is restricted to specific areas when the whole system is out of step with current market rents. We must also await the outcome of consultation on increasing the length of private tenancies.

Social and Affordable Housing

While there were some positive announcements before the budget, including the £2 billion programme for social and affordable housing (October 2007), these figures are miniscule in relation to the £44 billion overall budget announcement. The £400 million for estate regeneration is negligible given the massive bills arising for basic safety works, such as sprinkler systems post-Grenfell, which will cost millions of pounds in Birmingham alone.
We are also very disappointed not to see a response to recent reports showing how private developers are evading affordable housing requirements by claiming that they threaten scheme viability (defined as a profit of under 20%).

The most welcome new announcement — apart from the relatively small sums for rough sleeping pilots, construction skills measures and to support Grenfell residents — is the relaxation of borrowing restrictions for local authorities in high demand areas, by about £1 billion by 2021/22, so that they can start to build council housing again. This seems a welcome move away from the previous policy forcing councils to sell council housing in high cost areas to finance the housing association “voluntary” right to buy. But alas the Housing Association Right to Buy policy has still not gone away, and there is funding for new pilots including one in the Midlands.

Finally, while we welcome the possibility of 100% council tax on empty homes, we are stunned that there is still no new funding to bring empty homes into use, given the emphasis on housing supply and the outstanding success of previous empty homes funding between 2012 and 2015.

“No Big Splash on Taxation” — Prof. David Lymer

The second Budget of 2017 offered a range of small giveaways to various groups but no big splash news for the many on the lowest incomes and those just about managing that many had called for.

There was confirmation of an increase in the National Minimum Wage to £7.83 from April next year (from the current £7.50 per hour) which, the Chancellor claims, will leave £600 a year in the pockets of 2 million people on this very low level of income. This is clearly a welcome 4.4% increase.

However, at the same time he froze VAT thresholds for small businesses starting to have to charge VAT to their customers. This matters to the same people as this will mean more businesses having to charge people VAT than would have been the case before – the same people who will receive this 4.4% increase may find they get hit with a 20% extra cost on the services and goods they buy from smaller traders.

The key area of focus of the Chancellor’s speech was on housing, with various announcements attempting to address the housing shortage now widely acknowledged as one of the most significant issues the UK faces. This included £44 billion for housebuilding but only part of this in cash and it was not clear how much of this will support the most in need, social renters — rather than promoting so-called “affordable” housing which remains the mantra of the Conservative Party as if that is the only sensible approach to addressing housing needs for all.

The Chancellor also abolished stamp duty for first time buyers buying homes up to £300,000, with immediate effect. But again, this only benefits those in a position to be able to put down the large sums needed to buy their own home. The details in the full Budget documents might reveal more for the social rent sector than the speech gave away, but this balance continues to be too skewed towards home ownership.

Welcome National Investment, Disappointing for Regions — Prof. Simon Collinson

This budget contains some very welcome investments in housing and skills, which are both key constraints on economic growth across the UK. The Chancellor has also announced new funding for the kinds of things that underpin productivity and innovation in firms of all sizes, across all industry sectors. This includes R&D (with an additional £2.3 billion and an increase in the R&D tax credit to 12%), capital investment for automation, digital infrastructure, and other “enabling technologies” which will help improve national competitive advantage and our ability to export. These initiatives also link to the National Productivity Investment Fund, which has been extended by a year and expanded to £31 billion. These are all welcome developments in the context of the UK Industrial Strategy, Brexit, and the need to improve the economy.

I am more disappointed in the announcements around regional funding, given there is also a real need to rebalance an economy that is over-reliant on London and the South-East. Inclusive growth is necessary for social and political as well as economic reasons. This should be driven by greater levels of investment and a set of policies that enable regions to improve their competitiveness and create more high-value, better-paid jobs.

The Chancellor did announce a £1.7 billion Transforming Cities Fund, to be shared across the metro mayor areas and beyond, and the West Midlands has been awarded £250 million for transport connectivity. But these amounts are relatively small when we consider, for example, that almost £15 billion has been committed to the Elizabeth Line as part of the Cross-Rail programme of transport improvements for London.

Uncertainty on Redistribution — Dr. Siddhartha Bandyopadhyay

The budget is the government’s annual redistributive exercise. Each year, the government’s budget has an effect in terms of receipts and spending but its impact plays out in a number of ways which are not always obvious.

One of the expectations this year had been around investment in housing and steps to encourage home ownership. There has been increased investment in housing and first-time buyers are exempt from stamp duty for houses under £300,000. Yet, the actual impact of this may simply be higher house prices, helping those who own property. This is a good illustration where tinkering with market prices lead to gains for groups that are not targeted.

None of the measures announced today are wholly unexpected, the Chancellor is facing a difficult choice between increasing spending on public services that are badly stretched and increasing the deficit, forecast to be much larger than expected, thereby implicitly burdening future generations unless one hopes that some of the budgetary measures will also stimulate growth.

Budgets are also political exercises, with the government suggesting that the tax and spending measures will boost the economy and help various sectors and the opposition castigating most measures as misguided or “doing too little”. Thus, while the headlines indicate a “no surprise” budget on the whole, we will have to assess the true impact more carefully as the various measures affect incentives and play out with the price system adjusting to the changes. Added with the uncertainty created by Brexit, it will be a very bold person who can confidently forecast the medium-run impact of this year’s budget.

“A Sticking Plaster” — Prof. John Fender

The Chancellor’s task in this Budget was by no means easy. On the one hand, there are real signs of strain in many public services and one would really like to allocate these worthy causes more resources. But, on the other hand, the public debt/GDP ratio is over 80%, and there is a budget deficit between 2% and 3% of GDP. There is also the lamentably low rate of productivity growth in the economy, and there are absolutely no signs of it increasing. The forecasts, prepared by the Office for Budget Responsibility, confirmed that sluggish growth of productivity can be expected for a number of years.

This might be described as a “sticking plaster” budget. In many of the areas in which there were calls for extra spending, and on some of the taxes which are most complained about, such as business rates, there were some measures.

It was predicted that housing which would receive major attention in the Budget, and it did. The most prominent reform was the abolition of stamp duty for first-time buyers on purchases up to £300,000. This will do a little to help some first-time buyers who otherwise would not have been able to buy property, but the effect will be fairly modest. For example, a household purchasing a property for £200,000 will see their stamp duty bill of £1,500 eliminated — it is difficult to believe that this measure will make a major difference to house purchase decisions.

The budget has taken some very modest steps in the right direction, but there were no major changes, particularly in areas where they are sorely needed. But given the political constraints the Chancellor is under, major initiatives were not to be expected.

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