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Philip Hammond’s Budget bonus

29th Oct 2018
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Last week, the Office for Budget Responsibility, whose forecasting record has been at best unreliable, announced some very good news for the Chancellor of the Exchequer.

Apparently, its previous estimates of the country’s finances were way off beam and we should have an extra £10bn to £15bn available for each of the next few years.

While this sounds like a wonderful bonus, I am concerned that it may be illusory. In particular, there is an even bigger issue in that if the Chancellor does announce a mini giveaway, there has to be every chance that he will then need to increase taxes in the near future to make up a shortfall that results from what turns out to be an incorrect estimate.

Over and above the OPR’s record for getting things a bit wrong, the underlying reason for the previous misstatement also gives me cause for concern.

Apparently, this is all the result of a tax windfall, which is due to a combination of different elements but one of the most significant is high employment. This has an immediate knock-on effect on tax revenues, presumably primarily through additional PAYE and NIC take.

Am I the only person to spot a potential flaw when projecting this forward? As every reader of this column must surely know, the United Kingdom is planning to leave Europe and 29 March next year i.e. in five months’ time.

With all due respect to politicians of all parties, not one of them from the prime minister down (or is that up?) seems to have the faintest idea of what the consequences of this major step will be. We don’t even know if we will be doing it on the basis of some kind of botched together deal or bravely moving into the unknown with no deal at all.

Either way, it seems likely that some organisations will relocate either the whole of their business operation or some staff members away from this country. At the same time, and it may be gradual, there will be fewer european migrants, whether permanent or temporary, willing to take their chances in our country, even if they are allowed to.

What would appear to be an obvious consequence from all of this is that in the not too distant future there will be fewer people working in United Kingdom than there are at present.

While accountants are often renowned for their mathematical skills, it doesn’t take a genius to add two and two together and come to the conclusion that if there are fewer people working then there will be a reduced amount of PAYE and NIC paid.

Even its most fervent admirers seem willing to admit that in the early years our exit from the European Union will have a negative economic impact.

Adding all of this together, I wonder whether Philip Hammond will really attempt a giveaway in his budget speech or merely do the equivalent of moving the mashed potato and beans around on the plate a few times without taking more than a taste of what could soon be a heavily diminished main course.


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By SteveHa
29th Oct 2018 12:01

it doesn’t take a genius to add two and two together and come to the conclusion that if there are fewer people working then there will be a reduced amount of PAYE and NIC paid.

Of course the flip side to this is that there will be fewer people who government need to spend on, and so overall costs should also reduce.

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Replying to SteveHa:
Hallerud at Easter
29th Oct 2018 17:47

Only variable and semi variable costs, fixed establishment costs of a school are pretty much the same once built irrespective of 460 children or 500 children.

In theory staff cost savings but only if can compress number of classes re a subject.

If previously teacher gave 20 classes with 25 children in each a week re violin, with now 460 pupils, spread over say 6 year groups, they might now do 20 classes with 23 in each, reduced demand leading to no cost savings as still need to run, re timetabling, same number of classes with fewer pupils in each; violin teacher still needs paid for 20 hours a week.

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