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Austerity "is coming to an end," British Chancellor of the Exchequer Philip Hammond said on Monday, citing new public spending. But he warned that financial plans could change if Britain fails to reach an agreement on the withdrawal of the European Union.
In his latest budget speech ahead of the United Kingdom's planned exit from the United Kingdom next March, Hammond announced a tax on multinational digital giants that have been widely criticized for paying low taxes in many countries European.
But his big political message was the promise to put an end to a long pressure on public spending by injecting additional funds into the areas of health, education, defense and even pothole repair. on motorways. The amount employees can earn before paying income tax will also increase, which will help increase net pay.
Nevertheless, British policy is eclipsed by the withdrawal, known as Brexit. Negotiations on this issue are stalled in Brussels and without an agreement, Britain would face a catastrophic departure on the edge of the chasm in March, which could close the ports and disrupt supply chains. Investment has recently declined, companies delaying or canceling their decisions due to uncertainty.
Mr Hammond told lawmakers that if Britain could reach an agreement with the EU, there would be a "double dividend on Brexit" when certainty returns, and the government has the right to do so. a leeway to spend money chaotic departure in March next without any agreement.
But Hammond's financial plans are generally based on the assumption that Britain is negotiating the kind of exit it wants from the European Union: not just a smooth start, but also a close economic link with the EU. block. On Monday, he said that as a precaution, he "kept his firepower to intervene if the economy needed more support," and that, if the outlook changed, he might have a another full budget in the spring.
The unconditional supporters of Brexit in Hammond's Conservative Party want a sharper break with the bloc. Some are threatening to vote against any Brexit deal that links Britain too closely to the European Union. Thus, his comments will be recalled as a reminder of the economic consequences – and political – of anything that may deviate from the group he wants.
They know that the British are tired of years of cutbacks in key public services introduced as the country struggled to clean up its finances as a result of the financial crisis. Indeed, many analysts believe that the vote in favor of Brexit was partly a reaction to austerity policies, particularly in regions of the country that have not benefited from globalization.
Critics argue that Mr. Hammond is still not planning to vigorously reverse these policies and that some reductions will continue, particularly with respect to capital expenditures.
"Austerity is not over," said Jeremy Corbyn, Labor Party leader of the opposition, who added that this had caused "real hardship to millions of our citizens".
Although the UK economy has slowed down, it continues to grow and Hammond still has room for maneuver because tax revenues have been higher than expected. This allowed him to meet the commitments made by the Prime Minister, Theresa May, who had already promised a significant increase in spending to reduce pressure on the British government. Overburdened National Health Service.
Hammond said the budget deficit would be less than 1.4 percent of the total budget next year, with loans of 11.6 billion pounds, or $ 14.7 billion, less than expected in the next year. spring. The growth forecast for next year has gone from 1.3% to 1.6%.
But overall, the picture is not so rosy. Debt remains high, at about 84 percent of gross domestic product, compared to about 34 percent in 2001, and productivity growth remains stubbornly low.
According to the Center for European Reform, a London-based research institution, the British economy is 2.5% smaller than it would be if the country had voted for the maintenance of the Union. European.
Among the announcements announced on Monday, there was more money to cushion the impact of a new social benefits system called "universal credit" which, according to critics, would push some people into extreme poverty. .
Hammond also pledged to tax plastic packaging and invest in Heathrow airport in London so visitors from the US, Canada, New Zealand, Australia and Japan can use the electronic passport portal.
One of the most important announcements concerned the creation of a new tax on digital services for large technology companies that pay relatively little tax in Britain.
"A new global agreement is the best long-term solution," Hammond said.
The details of the proposed levy were rare, but Mr Hammond announced his intention to introduce it by 2020 and that annual revenue would be around £ 400 million.
"I insist that it is not an online sales tax on products ordered over the Internet," he said, adding that the Great Britain would continue to work with the Organization for Economic Co-operation and Development and the Group of 20 economies to seek a mutually agreed solution. tax these companies.
"If we emerge from it, we will consider adopting it instead of the UK's digital service tax," he added.
