Budget 2018: What the experts say
Academics and experts from across the University of Sheffield have given their views on the Budget 2018 (29 October 2018).
Professor Sumon Bhaumik, Chair in Finance at the University of Sheffield's Management School
In an otherwise pedestrian budget, there are perhaps two things most worthy of note; low expected GDP growth over the next few years was a foregone conclusion.
First, the government has tacitly acknowledged that technology companies earn economic rent for a variety of reasons, and that there is need to claw back a greater proportion of that rent. The £400 million figure itself is small, and not all companies earning rent may be covered by the digital services tax, but it is a start.
Second, the decision to raise the personal allowance and the higher rate threshold is difficult to explain in an environment when there are competing demands from a host of public services, and when the fallout from Brexit requires a fiscal buffer, especially given the non-zero probability of a no-deal Brexit. Add to that the other giveaways - according to the Guardian, "The spending commitments announced in today’s budget are the “largest discretionary fiscal loosening” since at least 2010, when the OBR was created" - and it is not difficult to imagine that first salvo has been fired for the next election, should a no-deal Brexit lead to one.
Professor Prem Sikka, Professor of Accounting and Finance at the University of Sheffield
The 2018 budget announcement promised much but delivered little. The UK economy has been dogged by low investment in productive assets and low productivity. With Brexit uncertainties these things needed to be addressed as the corporate sector is holding back investment.
Wages have been depressed and workers’ share of the GDP now stands at around 49.3 per cent - the lowest ever recorded. As a result, people don’t have enough money to spend and city centres have become economic deserts.
The biggest headline is the £20.5 billion for the NHS over the next five years. As a percentage of GDP, the UK heath spend will still be below that of the Blair/Brown years and behind that of France, Germany and Scandinavian countries.
There is no significant additional spend on the police but a spending review is promised. Around £1 billion will be put into University Credit over the next five years. Prime Minister Theresa May promised the end of austerity but local councils will barely see an increase of 1 per cent in their budgets.
A notable feature is that the government has stolen Labour policies. For example, the promise not to write any new Private Finance Initiatives (PFI) contracts. Labour’s 2017 election manifesto promised to make HMRC a preferential creditor and thus safeguard the amounts that are lost upon bankruptcy of businesses. The government has stolen that too.
The net result of the government spend on fixing potholes, investing in the NHS and other measures is that the economy can expect to grow at around 1.6 per cent, but only two years ago the forecast was over 2 per cent. With each Conservative budget, the economic growth target has decreased and none has been met.
Overall, the budget fails to address issues about investment and purchasing power of the people and is disappointing.
Dr Jonathan Perraton, Senior Lecturer in Economics at the University of Sheffield
Chancellor Philip Hammond delivered a budget with key measures heavily trailed in advance, in particular Theresa May’s announcement at the Conservative Party conference that austerity was over and her earlier commitment to raise expenditure on the National Health Service.
The Government’s borrowing has been lower than forecast and the Office of Budget Responsibility (OBR) had upgraded its forecasts for public finances. Effectively the Chancellor has chosen to spend this windfall.
Universal Credit has been made more generous, only partly reversing the benefit cuts of the 2015 budget. Rises in the thresholds for the basic and higher tax rates have been raised a year ahead of schedule (measures that tend to help the better off disproportionately).
The announced increase in expenditure is heavily concentrated on the NHS with real expenditure flat-lining for other government departments (and falling per capita with a growing population). Departmental capital spending has been cut from 2019-20 onwards; the Chancellor did announce an end to the Private Finance Initiative, used by past Conservative and New Labour governments to finance capital projects, but has not replaced this with direct government investment. Overall, austerity hasn’t ended for government departments outside the NHS.
The economic background to the budget remains subdued despite the upgrades in forecasts. Economic growth is still forecast to be below 2 per cent for each of the next five years, exceptionally weak by historic standards, and even this is based on a relatively optimistic assumption of a significant upturn in productivity. Overshadowing all this are two major risks.
First, the forecasts assume no global recession on the horizon, despite a range of downside risks. The second risk is Brexit; the OBR notes that this has already dampened investment and squeezed living standards. A disorderly exit from the European Union risks a severe impact on the British economy.
Professor Lenny Koh, Director of the Advanced Resource Efficiency Centre (AREC)
Through his Autumn Budget 2018, the Chancellor Philip Hammond has said to the world that Britain is open for business. This is a sustainable and upbeat autumn budget, prepared for a digital and technological future, and for a dynamic economy. The UK has a prime environment that is attractive for global inward investment with low tax.
In addition, I welcome the measures the Chancellor has announced to protect the environment, including tackling plastic waste through a new tax on plastic with less than 30% recycled content. I also welcome the Chancellor's announcement that there will not be a levy on disposable cups. While this is an important issue to tackle, our previous research has shown that such a levy may risk unintended consequences. Our empirical research on UK consumers nationwide found that it is unlikely that the reusable cup will replace paper cups and advised against cup taxation or a levy because this will not address the resources and waste challenges.
Professor Tony Crook, Emeritus Professor of Town and Regional Planning
On housing our key need is to build a lot more affordable homes and to fix what the PM has described (quite rightly) as our 'broken housing market' but the budget addresses this only marginally. The PM promised more grant funding for housing associations before the budget but this funding is not available for two years and will not be enough to meet the growing backlog of unmet need.
The budget announced that the Help to Buy programme which provides government backed equity loans for new home buyers is to be extended, but for two years only and with some greater targeting. Although many in the house-building industry will welcome this support for their sales others think it has mainly stoked up prices and helped nurture company profits.
There have also been some announcements in the budget papers such as the Letwin review to find ways of increasing the build out rates on large sites with planning permission. Some of his suggestions to increase more diversity in the types and tenures of homes being built on large sites may need more small builders and housing associations working alongside the major volume builders and it is not clear if they will have the funding to get involved, especially given the collapse in the numbers of small builders since the global financial crisis.
Once the Help to Buy programme ends we are going to need a much more thorough ongoing effort to fix our broken housjng market and in the meantime Brexit will continue to overshadow demand and supply, not the least concerns about the impact of Brexit on the costs of imported materials and the supply of skilled craft labour. Productivity has risen only very slowly in the hosuebuilding industry and although modular rmethods of construction and a big increase in apprenticeships may raise productivity we are a long way from seeing this take off to the scale needed to deliver efficiencies all round and to increase the supply of skilled labour.
Views posted in comment articles are those of the author(s) and do not necessarily reflect the opinion of the University of Sheffield.