Emergency Budget: Populist policy?

Another day, another Budget. In total there were 60 announcements on taxation and spending to mull over so forgive me if I don’t cover them all in this blog. Changes to the personal taxation regime and the widely trailed cuts in the welfare budget were two of the major announcements confirmed in today’s statement. However, there were a few “rabbits out of the hat” particularly an increase in the National Minimum Wage (now referred to as the National Living Wage) to £9 for those over 25 by 2020 and a further reduction in Corporation Tax rates to 18% from 2020 to 2021.

In terms of economic ideology it flitted between the traditional Conservative policies of reducing the role of the state through to the enhancement of the New Labour policy of increasing the minimum wage. It also continued the reform of lower rate tax bands, a flagship policy of the Liberal Democrats. A Kaleidoscope Budget, as the Speaker may have called it.

Today’s statement certainly creates a pro jobs, pro growth economy which is to be welcomed. However, the changes in the welfare state make the necessity to keep the economy strong, and able to provide dynamic employment opportunities, imperative. Of course this is always the ambition of any Government but the changes to the welfare state will surely have to be pragmatic depending on the macroeconomic environment.

Overall, this was an ambitious Budget in terms of taxation and saving but rather disappointing for the construction industry

For the construction industry, major announcements were sparse. There were expectations that major infrastructure projects would be proposed but this did not happen. There was also speculation that the Northern Powerhouse would receive some serious financial backing, but it still remains a concept rather than a tangible policy at this stage. £35 million was allocated to set up Transport for the North and Midlands Connect, but many were expecting something more substantial. There are announcements due on reform of the planning system due on Friday which may provide more substance but today’s statement was relatively benign. There were also plans announced to Vehicle Excise Duty which will result in all proceeds being allocated to a Roads Fund from 2020-21. The Treasury forecast that this will bring in £1.4 billion in 2020-21 so, while welcome, is relatively small beer when you have road infrastructure “that ranks behind Namibia.”

One announcement which may have a big impact on the social housing sector is the policy to reduce social rents by 1%. One would imagine this is not going to help the sector, and may actually hamper rather than boost house building.

Overall, this was an ambitious Budget in terms of taxation and saving but rather disappointing for the construction industry. Solving the housing crisis and improving infrastructure are essential for construction and the UK economy but they continue to take a back seat to easier, more populist, policy approaches.

Michael Dall is an economist for Barbour ABI