Philip Hammond is in an unenviable position as he delivers his second Budget as Chancellor on 22 November. He needs to pull a rabbit out of a hat, but it’s proving very difficult to catch.
The UK’s finances are far from restored to health, and yet the population has no appetite for further austerity. He must use his budget to shore up a failing government, with almost no room for manoeuvre. His budget will need to employ unprecedented sleight of hand.
There are some key areas of focus for the electorate: ‘Intergenerational fairness’ has become a watchword. It is increasingly clear that there is a vast wealth generation gap, with younger generations priced out of the housing market, struggling on lower wages and unable to save for the long-term. The Government needs to counter the accusation that austerity has been focused on younger generations, while older generations have remained largely untouched.
There are several ways the Chancellor could address the problem. There has been discussion of tax cuts for the young by slashing pension tax reliefs, for example. Dividend income may come under attack, as it is paid largely by older generations. Rogue landlords may also come under fire for pushing through rent rises.
Pensions tax relief looks vulnerable, particularly now the government has been forced to sustain the triple lock. There again, it has looked vulnerable for some time and has now survived multiple budgets. If there is to be a change, the government has discussed moving to a flat rate of 33%, hitting those on middle incomes.
There are also calls for the Chancellor to address the housing crisis. Not only are not enough homes being built, there are concerns that stamp duty changes in recent years are distorting the market. Huge increases in stamp duty at the top end of the market are creating gridlock elsewhere. The Adam Smith Institute recently suggested that stamp duty destroyed almost as much wealth as it generated in tax revenues and should be abolished, while others have called for reform. Buy-to-letters remain an easy target – and may see further hikes in stamp duty and/or attacks on property income.
Perhaps most important will be the tone of the budget. Business leaders are looking for signs from the Chancellor that the UK is ‘open for business’ in the face of glacial progress on the Brexit negotiations. Philip Hammond needs to find that elusive rabbit.