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Hammond pumps £25b into UK economy to counter slowdown
BRITISH Finance Minister Philip Hammond is pumping £25 billion (S$45 billion) into the UK economy to counter a slowdown.
The decision - made despite the UK's national debt of 89 per cent of gross domestic product - is the result of a sharp forecast downgrade from the government's independent fiscal watchdog.
The Office for Budget Responsibility (OBR) expects economic growth to slow from 1.5 per cent this year to 1.3 per cent in 2019, compared with March growth projections of 2 per cent and 1.7 per cent, respectively.
Since inflation has climbed to 3 per cent, Britain faces a period of stagflation, some 16 months until "Brexit".
Illustrating his concern, Mr Hammond, the Chancellor of the Exchequer, earmarked an extra £3 billion over the next two years in case negotiations falter.
The European Union (EU) has refused the UK's initial exit offer of £20 billion. If the government's unconfirmed higher offer of up to £40 billion is rejected, the £3 billion will be part insurance against a negotiations walkout without a trade deal.
With Prime Minister Theresa May struggling with a minority government and growing numbers of young people gravitating towards the opposition, the hard-left Labour Party, most of the £25 billion will be allocated to first-time property buyers.
Stamp duty has been abolished for apartment and house prices of up to £300,000, with savings of up to £5,000.
The government is also offering guarantees and incentives to spur residential property building with a target of 300,000, although annual building has been well under half.
Also, those between the ages of 26 and 30, who cannot afford to work in expensive London, will receive subsidies on rail tickets.
Some £2.8 billion will also be placed in the National Health Service, which is short of funds and is burdened by the growing numbers of elderly patients.
People will pay tax only if they earn more than £11,850, compared with the previous £11,500. From that level, people will continue to pay 20 per cent up to £46,350, and then 40 per cent until £150,000, when the marginal rate rises to 45 per cent.
Corporate tax remains at 19 per cent. The government will be cracking down on foreign sellers using eBay and Amazon to dodge 20 per cent value-added tax.
Royalty payments to Google and other multinational firms that are made to offshore centres will be taxed. The aim is to have an international agreement to enforce tax payments on turnover generated in countries, despite corporate registration in tax havens.
Robert Chote, chairman of the OBR explained that economic growth has been downgraded because of poor productivity in the years since the 2008 financial crash.
To improve productivity, Mr Hammond said that the government will encourage entrepreneurs and technology, and invest £406 million in mathematics and technical education. The National Living Wage is to rise by 4.4 per cent to £7.83 an hour from next April.
Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research said that the government has adopted Keynesian policies - that is, borrowing to counter downturns.
The risks to this latest UK budget are threefold, he said. "First, the markets may take fright that a Conservative government has no serious plans to cut borrowing dramatically.
Second, any faltering in world growth would destabilise the sums completely.
Third, if Brexit turns out to be more complicated than planned, there is no further scope to cushion its effects," he said.
Azad Zangana, a senior European economist at Schroders, cautioned that the scrapping of stamp-duty for first time buyers will distort property prices.