Budget not intended to pave way for general election, says Hammond

Chancellor Philip Hammond has insisted he is not paving the way for a general election with Budget tax cuts and spending hikes.

Mr Hammond rejected claims he had abandoned plans to bring down the deficit and balance finances as he said he was giving the UK “good news”.

Asked if the giveaway Budget was a marker for a possible general election, Mr Hammond told ITV’s Good Morning Britain: “I hope not. What we are preparing for is Britain’s future.

“We’ve now turned a corner and we are able to give Britain a bit of good news.”

The Chancellor suggested that a Brexit deal could trigger more tax cuts and increased public service spending.

He told BBC Breakfast: “Because there will be a benefit to the economy from getting that deal, I hope we will be able to do a little bit better still than I set out yesterday, with a bit more money for public services when we have our spending review next year, and perhaps a bit more available going forward for some more tax cuts.”

Shadow chancellor John McDonnell said the Budget could signal a general election ahead.

He told ITV’s Good Morning Britain: “The Tories usually do this. If a general election is coming, what they’ll do is they’ll splash out some money and then if they win the election they then start cutting it back again.”

Mr McDonnell dismissed the Chancellor’s claim austerity is coming to an end as he insisted it is “rolling out still”.

He said: “I think people will be crushingly disappointed at yesterday because it certainly wasn’t the end (of austerity).”

Mr McDonnell said Labour would support tax cuts, but make the system fairer if the party won power.

Paul Johnson, director of the Institute for Fiscal Studies, said Mr Hammond had “got lucky” because tax revenues were better than expected.

He told BBC Radio 4’s Today programme: “He’s just simply decided to spend all of that.

“I think he has abandoned any idea of getting to budget balance by the mid-2020s.”

Mr Johnson said there were big increases in NHS spending over the coming years but “he hasn’t found any money” for other public services.

Mr Hammond insisted the deficit will decline in every year of the forecast period.

He told Today: “We retain an ambition to balance the budget.”

The Chancellor dismissed suggestions that he had chopped down the “magic money tree” and burnt the lot.

“You are painting a picture here that is designed to show that I’m abandoning fiscal rectitude,” he said. “I’m not.”

The Chancellor defended his decision to increase income-tax thresholds in a way which benefits the wealthy more than the worse-off.

He said many middle-income workers in schools, hospitals and police services had been dragged into the higher rate of tax, adding: “It’s important to raise all of these thresholds.

Measures announced in Mr Hammond’s third Budget amounted to a £100 billion loosening of the purse-strings over a six-year period.

But the spectre of a no-deal Brexit hung over the 72-minute statement, with the Office for Budget Responsibility (OBR) warning that failure to reach agreement with Brussels would hit the economy hard.

A disorderly Brexit “could have severe short-term implications for the economy, the exchange rate, asset prices and the public finances”, warned the Government’s independent forecaster.

“The scale would be very hard to predict, given the lack of precedent.”

Setting out his income tax cuts, Mr Hammond said the personal allowance will rise to £12,500 and the higher rate threshold will rise to £50,000, both from April 2019.

The changes had been due to come into force in 2020.

Mr Hammond said it would put “£130 in the pocket of a typical basic rate taxpayer”. The Treasury calculated the cumulative effect of increases in tax thresholds since 2010 at £1,200 for basic rate payers and £1,800 for those paying the higher rate.

The Chancellor set out a five-year plan for departmental spending which will see Whitehall budgets rise by an average of 1.2% a year.

Detailed figures made clear that the lion’s share of this extra funding will go to the Department of Health to pay for a £20.5 billion boost to NHS spending, while other departments see their budgets rise in line with inflation.

Downing Street insisted the spending pledges were fully funded, irrespective of the outcome of Brexit talks.

As well as giving, there was some taking.

In a move designed to put the UK at the forefront of international action to adapt tax systems to the digital age, the Chancellor announced a £400 million levy aimed at internet giants such as Google and Facebook.