Philip Hammond benefited from a £25.3bn windfall going into the Budget until 2022, thanks to changes to forecasts from the Office for Budget Responsibility. Previous chancellors would have been tempted to pinch these “savings” to fund spending commitments. But, by and large, Hammond kept his hands in his pockets.
The chancellor’s headline measures were designed to alleviate short-term pressures across the public sector. The review of business rates will be softened by support totalling £435m. Local authorities will receive an additional £2bn over three years to fund adult social care. In total, the government’s policy decisions added £5bn to borrowing over the forecast period.
These figures may be small beer compared to the government’s £51.7bn deficit but, within these commitments, the chancellor was able to announce a series of measures that could boost the perilous state of the UK’s long-term finances.
Taking aim at the £5bn gap between the tax treatment of the employed and self-employed, the chancellor said class 4 national insurance contributions would rise to 11%, raising £495m in 2021-22. The government’s “jobs miracle” has in part been driven by self-employment. The Treasury’s gamble is that future entrepreneurialism will not be discouraged by an increasing tax burden.
The chancellor also said there would be £325m for a “small number” of the 44 health regions developing sustainability and transformation plans. These have the potential to change the face of healthcare – moving care away from hospitals and into the community. In practice, Reform research suggests that the plans are moving at different speeds. The future of the NHS relies on this investment transforming the health service’s productivity.
Finally, on social care, the chancellor said a green paper on funding models would be published in November. Hammond declined to comment on the government’s emerging thinking in this area but he put the final nail in the coffin of the “death tax” – a levy on estates to fund care in later life.
If speculation in the press is anything to go by, the government could consider a social insurance scheme to pay for social care, similar to that employed by Japan or Germany. Such a move would be a radical departure from the UK’s tax-funded approach to social security.
Hammond went into the Budget stressing his credentials as a reformer of public services. A review of the triple lock on the state pension was announced in November; now social care funding is on the table. If the chancellor is to significantly improve the long-term outlook of the public finances, he must turn these words into deeds.
