Philip Hammond made much of his decision to soften cuts in state benefits for hard-pressed working families today, but it is not as generous as it looks. The Chancellor pre-announced it for Wednesday morning’s newspapers and broadcasters, knowing that if held it back until the Autumn Statement, it would be eclipsed by the “Brexit effect” on the public finances.
Mr Hammond's advance billing of his partial retreat garnered some positive headlines, but he didn’t really deserve them. He abandoned only about £700m of a £3bn-a-year cut in Universal Credit top-ups for low income earners. They will keep 2p more of every extra pound they earn than under George Osborne’s original plan, and will now retain 37p instead of 35p – hardly a huge extra incentive to work.
The small print of the Autumn Statement shows that Hammond will hand back only £35m to the 3 million beneficiaries in the 2017-18 financial year and £175m the following year.
A better course would have been to ditch Osborne’s cuts to work allowances – the amount people can earn before the state top-ups are pared back.
Hammond judged that the deficit did not allow him to do that, but it would have been the best way to help the six million “just about managing” families (known as “Jams”) that Theresa May has vowed to champion. They are in the bottom half of the income scale but above the bottom 10 per cent.
Mr Hammond could and should have done more to help the Jams. He limited his own room for manoeuvre by reaffirming plans to cut income tax by £8bn for people higher up the income ladder.
He is determined to honour the pledge in last year’s Tory manifesto to raise the personal allowance to £12,500 and the threshold for the 40p tax rate to £50,000, but most of the gains from these measures will go to people in the top half of the income scale.
Mrs May diagnosed the right problem: the people who feel “left behind” by globalisation. Many voted “Leave” in the June referendum, and the same group have now put Donald Trump in the White House. But the Autumn Statement showed that her Government has not yet produced a big enough remedy.
The 6 most important issues Theresa May needs to address
The 6 most important issues Theresa May needs to address
The big one. Theresa May has spoken publicly three times since declaring her intent to stand in the Tory Leadership race, and each time she has said, ‘Brexit means Brexit.’ It sounds resolute, but it is helpful to her that Brexit is a made up word with no real meaning. She has said there will be ‘no second referendum’ and no re-entry in to the EU via the back door. But she, like the Leave campaign of which she was not a member, has pointedly not said with any precision what she thinks Brexit means
2/6 General election
This is very much one to keep off the to do list. She said last week there would be ‘no general election’ at this time of great instability. But there have already been calls for one from opposition parties. The Fixed Term Parliaments Act of 2010 makes it far more difficult to call a snap general election, a difficulty she will be in no rush to overcome. In the event of a victory for Leadsom, who was not popular with her own parliamentary colleagues, an election might have been required, but May has the overwhelming backing of the parliamentary party
Macbeth has been quoted far too much in recent weeks, but it will be up to May to decide whether, with regard to the new high speed train link between London, Birmingham, the East Midlands and the north, ‘returning were as tedious as go o’er.’ Billions have already been spent. But the £55bn it will cost, at a bare minimum, must now be considered against the grim reality of significantly diminished public finances in the short to medium term at least. It is not scheduled to be completed until 2033, by which point it is not completely unreasonable to imagine a massive, driverless car-led transport revolution having rendered it redundant
4/6 Heathrow expansion
Or indeed Gatwick expansion. Or Boris Island, though that option is seems as finished as the man himself. The decision on where to expand aviation capacity in the south east has been delayed to the point of becoming a national embarrassment. A final decision was due in autumn. Whatever is decided, there will be vast opprobrium
5/6 Trident renewal
David Cameron indicated two days ago that there will be a Commons vote on renewing Britain’s nuclear deterrent on July 18th, by which point we now know, Ms May will be Prime Minister. The Labour Party is, to put it mildly, divided on the issue. This will be an early opportunity to maximise their embarrassment, and return to Tory business as usual
6/6 Scottish Independence
Nicola Sturgeon and the SNP are in no doubt that the Brexit vote provides the opportunity for a second independence referendum, in which they can emerge victorious. The Scottish Parliament at Holyrood has the authority to call a second referendum, but Ms May and the British Parliament are by no means automatically compelled to accept the result. She could argue it was settled in 2014
True, it took a welcome small step away from George Osborne’s divisive strategy of pitching “strivers” against “scroungers” to win support for his £12bn of welfare cuts in this five-year Parliament. But Mr Osborne’s four-year freeze in working age benefits until 2020 will go ahead under May, a £4bn cut. With in-work poverty rather than scrounging the biggest welfare problem, this will hit many of the very “strivers” the Conservatives purport to stand for.
To make a real difference to the Jams, Messrs May and Hammond needed to go further. They spend a higher proportion of their income on food, energy and petrol than those who are better off. With inflation set to rise higher than wages, the living standards of this group are going to take a big hit from the “Brexit effect”.
Tory MPs should not be bought off by Hammond's small concession on Universal Credit. Support for further austerity on the Tory benches is waning. They should use their parliamentary muscle to force the Government to build the “economy that works for everyone” it promises.
The Chancellor should have cushioned the just managing and not managing against the inevitable decline in living standards ahead. The money was there if he had delayed the income tax cuts that will largely help people who are better off. In refusing to take this opportunity, the Tories have shown that their true colours have not changed as much as Mrs May would like us to think.
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- Autumn Statement 2016