The Guardian view on the spring budget: not enough
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Version 0 of 1. The chancellor’s spring budget delivered today was a warm-up to the main event of this year’s November budget. As political theatre went it was a one-man show, with Philip Hammond delivering a performance that was low-key because there was so much to be low-key about. The changes outlined are small, costing a mere £1.7bn this year. Gone were the Brown-Osborne giveaways and gimmicks designed to win favourable headlines. With so much of the script trailed before – on cash for selective schools and publicity for business rate bailouts – it should surprise no one that onlookers braced for parliamentary surprises may have ended up being bored with the spectacle. But there was serious politics on display. At the heart of this budget was a promise to put up taxes on self-employed workers, who are disproportionately working-age men, to pay for health and social care services which benefit young families and pensioners. The Tory chancellor combined these policies with the theft of Labour’s political rhetoric about intervening when markets fail. This break with conventional Conservative ideology is best symbolised by Mr Hammond’s contradiction of a promise in the 2015 Tory manifesto not to put up “national insurance” contributions. Instead the chancellor announced he wanted to raise the class 4 rate. This is a repudiation of a Thatcherite myth that the self-employed were all entrepreneurs whose virtuous animal instincts should be rewarded by being taxed at a lower rate than traditional employment. Instead of unleashing a wave of risk-taking businesses, we have seen jobs created at the taxpayer’s expense. The self-employment equivalent of employee national insurance has a rate of 9% rather than 12%, and there is no equivalent of the 13.8% employer charge levied on wages. The result is Britain has seen a rapid, tax-incentivised growth of self-employment, accounting for 45% of the country’s “jobs miracle” since the financial crisis. Mr Hammond is seeking, rightly, to correct that with a “rights and responsibilities” model. This sees the self-employed pay more national insurance – from 9p to 11p in the pound, which will raise £2bn in the years up to 2022 – in return for more social protection such as pension rights. It is, as the Resolution Foundation pointed out, a progressive move partly because many highly paid professionals work as partners in firms and are treated as self-employed. The next step would be to go after the companies who use self-employment as a way of dodging national insurance. Theresa May’s chancellor risks a “read my lips, no new taxes” moment with Tory backbenchers. But it is courageous. If Labour is serious about being tough on the gig economy, it too should be tough on the causes of the gig economy. The cash will help pay for health and social care, which are in a dreadful mess of the Tories’ own making. The money for adult social care comes from one of the most squeezed Whitehall budgets – the Department for Communities and Local Government. Its budget for councils will be reduced by more than 80% in the decade to 2020. The obsession to shrink government so it is too small to work is at fault here. Yet Mr Hammond has no long-term answers for an ageing society. The government is also advancing an ideological low-tax agenda for its Tory base: a £1bn inheritance tax cut will benefit wealthy families in the south-east. In April there are big benefit cuts planned. Average earnings are projected to still be below pre-crisis peak by 2022. This at a time when companies are promised that corporate tax rates – already the lowest in the G7 – will be lowered further. The economy has been in the doldrums since the crash. Between 2007 and 2015, the UK was the only big economy in which wages contracted while the economy expanded. Productivity has flatlined. Brexit will make this worse. A depreciating pound will feed inflation, dropping real wages further. Much of the growth in GDP last year was due to immigration, which the prime minister says caused Britain to leave the EU. The economy rests on unsecured consumer debt. With the Bank of England unable to cut rates to stimulate the economy, the government should be spending, not paring back. It was bizarre for Mr Hammond not to trumpet spending measures such as housebuilding to boost growth. Britain tried cutting spending to re-energise an economy in the 1920s and it sent the country spinning into depression. Mr Hammond has a chance not to carry forward the last Tory chancellor’s mistaken agenda. He has been brave. He needs to be braver. |