OBSERVATIONS ON THE LATEST UK BUDGET

This was the first Budget under the premiership of Theresa May, and the first full annual budget presented by her new Chancellor of the Exchequer, Philip Hammond. It was also the budget that immediately precedes the imminent triggering of Article 50, which will signal the UK’s final release from the jurisdiction of the EU.

 This budget provided the government with a unique opportunity to demonstrate the flavour of its thinking on all key matters, both economic and fiscal. These should have been presented positively rather than defensively, the opposition parties having already been pulverised to the point of near-extinction by their leaders’ self-inflicted wounds.

Yet the opportunity was not taken.

The tone of Mr Hammond’s address gave no sense of having been thoughtfully conceived; rather, it was frivolous, even jocular, focussing on cheap jibes against the easy target of Labour Party disarray.

As to its substance, it completely failed to recognise the financial difficulties currently faced by the Conservative Party’s own core constituency: the hard-working mothers and fathers who prefer self-sufficiency to welfare dependency.

The National Insurance fiasco

This is rapidly becoming the stuff of legend. Only a Chancellor whose mind dwells in a remote but privileged cocoon could have seized on the difference between national insurance rates borne by the Employed and Self-Employed respectively, and decided to equalise them by increasing the latter charge. This is the problem when the Treasury’s excuse of “fairness” supplants the economic case. And all for what? A mere £145 million, which is the proverbial drop in the ocean compared with the projected budget deficit of £52 billion.

The Self-Employed know instinctively that they are really the sector most disadvantaged by these taxes. Employment is totally different. Employees work for their NET pay, not their gross pay, which they never see anyway, and the notional deductions from their gross pay (PAYE and NI) are paid, and ultimately borne, by their employers – who are in fact the entities that, by law, are obliged to hand it over to the Exchequer, like clockwork, every single month! But, since it takes several months for any tax rises to be passed on to employers, the employees do suffer – but only in the short term, until the next round of wage bargaining realigns itself with the market.

In any case, these days the concept of “National Insurance”, as a premium to be paid for health insurance, is a misnomer that has long been severed from its origins. It is just another tax. People who suffer these arbitrary imposts know

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this only too well, and are not taken in by the Treasury’s linguistic wriggling when it attempts to rationalise a step that makes no economic sense.

Corporation tax

It is correct that the basic Corporation Tax rate for limited companies stands at an all-time low of 20%, but what of the growing army of self-employed people for whom enterprise, initiative and long hours have become a way of life? Perhaps it has never occurred to Mr Hammond that these are the very people who have already suffered greatly from the Treasury’s determination to destroy incentives to save, by pursuing a policy of cutting interest rates to the point of pointlessness!

Business rates

The latest increases in business rates arise from recent property revaluations, and businesses (again, principally small self-employed enterprises) now face the penalty of increased business rates that have descended upon them for reasons wholly unconnected with their own growth or profitability. It is ironic that the upward revaluations arise as a direct result of the government’s own mania for credit expansion. It is therefore ludicrous that businesses should now be punished twice over: once because of the inflation attributable to government’s mindless money printing and, again, because the revised business rates are based on the very property bubbles that those inflationary policies have caused. 

The delicate balancing act

We all understand the logic of having to balance the budget. This means finding the revenue to pay for the Chancellor’s expenditure plans when much of this proposed expenditure is totally uncosted. It is not unduly cynical to point out that government spending, by its nature, is not susceptible to any form of reliably based economic calculation, and therefore that its expenditure priorities will be biased towards its own perceptions of what is most likely to win votes.

A budget deficit, the amount by which government expenditure exceeds its tax revenues in any fiscal period, simply adds to the national debt. It may be funded only by (i) issuing bonds that pay interest and carry redemption dates, effectively borrowing from private sector savings; and/or (ii) higher future taxes; and/or (iii) credit expansion involving the issue of fiat money, printed by government, effectively counterfeit – never to be repaid!

The National Health Service

And then there is the perennial bugbear, the National Health Service itself. Its problems have undoubtedly been exacerbated by its own success in discovering and dispensing new medicines and treatments, effectively creating a generation that, a few years ago, would have long passed its sell-by date. This is a trend that will continue, and must be factored in to any proposals for future funding.

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But the key obstacle lies in the fact that we live in a welfare economy, with all the huge and unaffordable expectations that go with it. The Chancellor’s problem is that his entire approach fails to acknowledge the impossibility of bridging the funding gap while limitless and indiscriminate “freebies” are taken for granted.

It is an economic rule that in an “entitlement” culture there can never be enough real (not fiat!) money to pay for expectations that are unhinged from need. It is also incontrovertible that (i) massive waste is psychologically and administratively unavoidable; and hence that (ii) delivery of health services can be accomplished less wastefully by being focused locally rather than nationally. The familiar objection of “postal-code lottery” can be overcome by electronic data pooling under which equipment, drugs, beds – even staff – can be transferred according to a data base of availability and need respectively.

Against this backcloth, the Chancellor’s unimaginative approach is well nigh useless. He speaks of petty funding allocations that are far too fiddly to achieve anything substantive, when what is needed is a touch of realism. For example, our system of prescription charges for medicines is hopelessly out of date, almost 90 percent of all medicines being given free. The arcane rules on who can, and who cannot, claim free drugs clearly do nothing to control the largesse that prescriptions have become under the NHS mentality.

Means testing as a remedy is socially intrusive. Yet, in principle, a standard payment by everyone in work of a modest amount of, say, £5 or £10, payable in advance for every GP appointment or hospital visit, would make a worthwhile funding contribution. It would also eliminate some of the crass indulgence that encourages people to take unwarranted advantage of the service for frivolous reasons (because it’s there!), causing congestion in waiting rooms and waiting lists for treatment.

Conclusion

On the broader canvas, the Chancellor could at very least have given us a clue, as Margaret Thatcher did, that he has a philosophical grasp of the conditions that alone can drive growth and productivity: less government intervention, while allowing private enterprise greater market freedom. Under this philosophy, government would recognise that the earnings of working people belong to them - and taxes should be levied with that precept in mind.

On current showing, Mr Hammond should try a different career.