The new litmus test for any Budget is whether it disintegrates within two weeks in a welter of recriminations and buck passing. On that basis, the 2018 Budget will be seen as a political success as no great problems have emerged from it and indeed there has been some political gain for the Government which may influence future policy, but more of that later.
The centrepiece of the Budget was the increase in the personal allowance to £12,500 a year earlier than the manifesto promised and the somewhat more surprising in the higher rate threshold to £50,000 again a year early.
These tax cuts created an immediate political dividend for the Government as it exposed divisions in the opposition with 20 Labour MPs voting against this tax cut defying the Labour Whip which had ordered an abstention. It also had the advantage for the Government of putting pressure on the Scottish Nationalist Government who do not intend to follow the tax cuts for the higher rate and will leave Scots earning £50,000 paying at least £1,300 more in tax.
The tax raising measures, as befits a Government which does not have an overall majority, were generally relatively technical and most of them do not come into effect until 2020. There was only one big tax rise of note which is the change in IR 35 legislation which will transfer the responsibility for IR 35 to the end user and is projected to mean that 150,000 more contractors will be drawn within the IR 35 net.
Apart from this widely expected change, none of the other revenue raisers that had been touted before the Budget were actually announced. The “dogs that did not bark” include the freezing of the personal allowance, raising national insurance contributions, reducing pensions tax relief for the higher paid, restrictions in IHT relief, the reversal of Corporation Tax reductions or the abolition of Entrepreneurs Relief. The extra headroom given by the OBR was used by the Chancellor to mainly spend on the NHS but also to give the tax cuts.
The difficulties that tax cuts created for the opposition may encourage a future Chancellor to weight future Budgets in that direction. As the major changes in health spending has now been funded it does mean that other demands on the Government such as Police, defence etc. may be vocally pursued but are in no ways as costly as the NHS pledge. If the economy grows faster than anticipated (and the 0.6% rise in GDP in Q3 of 2018 might presage this) then there may be more fiscal headroom within the Chancellors rules to reduce taxes further.
Of course, the one matter overshadowing everything else is Brexit. Any predictions must be tempered by this great unknown.
Contrary to all the widely circulated gloom, the Budget did not raise income tax or national insurance rates to pay for the NHS pledge. Instead, the Chancellor used the additional £11.3 billion head room he was given by the Office for Budget Responsibility not only to give the promised money to the NHS but also to bring forward by one year the increase in personal allowance to £12,500 and the higher rate tax band threshold to £50,000.
There were of course a number of tax rises (such as the IR35 changes) which were less high profile, reflecting the perilously small majority that the Government has in the House of Commons. This was never likely to be a dramatic budget because the Government has neither the authority nor the majority to carry this out.
The Budget gives a hostage to economic events as if there is a downturn, then the figures of borrowing could look worse than projections. The second hostage is that, with the exception of the NHS and Universal Credit, the additional sums for other departments are very low which could cause problems which may require extra emergency money.
For the longer term, the major gamble is that the extra money for the NHS will provide an appreciably better service. As the NHS will by 2023/34 account for 38% of Government expenditure there would seem to be little room for manoeuvre if the expenditure does not lead to a stable health service. At that point the government would need to think about some serious changes to the structure and funding of the health service; and the time for kicking the can down the road would be well and truly over.