Economics Digest 12.11.18

By Neel Shah and Rishi Shah

The End of Austerity? The Budget 2018

On 29th October, Mr Philip Hammond delivered his third Budget to the Parliament. He claimed that this “revolutionary”, saw the turn of economic policy, towards what he coined as “the end of austerity”. Austerity is the abstinence from spending and the higher taxes that the UK has seen since the financial crash, and by the increases in personal allowance, government spending and cuts in income tax, the UK has seen a slight reduction in austerity measures. Here are the key points from the Budget that really stand out:

o   The personal allowance threshold, which is the point at which people start paying income tax at 20%, will rise from £11,850 to £12,500 in April and moreover, the higher rate income tax threshold, which is the point at which people start paying tax at 40%, will rise from £46,350 to £50,000 in April.

o   New 2% digital services tax on UK revenues of big technology companies, from April 2020. Hammond says it will be expected to raise around £400m per year.

o   Confirmation of an extra £20.5bn for the NHS over the next five years and also a minimum extra £2bn a year for mental health services.

o   £400m extra for schools in this financial year.

o   halve the contribution to the apprenticeship levy for smaller firms from 10% to 5% in a £695m package to support apprenticeships.

The extra funding for the NHS, an organisation which is in dire need of it, took up a large proportion of the Budget. The strain on the NHS from the ageing population needs to be alleviated and the extra funding is a step in the right direction.

Another interesting aspect was the new levy on big tech firms, the vast majority of whom pay almost no tax in Britain, was one of few tax-raising measures.

Overall, the Budget included numerous noteworthy points, however, I feel that it was still erring on the side of caution.  Even though it was announced with a confident, bold tagline “The End of Austerity”, it is perhaps, more apt to note that it is a small increase in spending. The Budget was more of an indicator of the future inclinations of the spending, rather than very bold decisions in this one.

The last Budget of an era? This is the final Budget when the UK is part of the European Union. The chancellor has already said a new Budget would be needed if the UK and the EU cannot agree a Brexit deal.


Will Gatwick Build a New Runway Before Heathrow?


A vote on the 10th June saw MPs backing the Cabinet decision for the construction of a third runway at Heathrow, with 415 MPs in favour and only 119 against.

Construction is expected to begin in 2021, with the third runway becoming operational by late 2025. The project, expected to cost £14bn will be part of a greater plan to expand Heathrow into two new terminals: East and West, easing the 98% operational capacity Heathrow is currently running at. Notably, the new runway will provide 60,000 jobs and generate £70bn in revenue by 2050, increasing capacity of the airport from 85.5 million to 130 million passengers. This will allow Heathrow to maintain its stance as a global hub, ahead of rivals such as Paris Charles de Gaulle and Amsterdam.

However, many people have argued against the proposals. The main arguments against the construction of a third terminal concern the surrounding area. Residents in towns such as Sipson will be forced to relocate, paid compensation of 125% market value, in addition to legal fees and stamp duty. People are also concerned of the increase in noise pollution, with 700 more flights daily. However, £700 million will be invested to fund noise insulation, and a ban on night-flights would be an absolute requirement. The main issue left unanswered is the extent of the air pollution created from a third runway, with some sources claiming the third runway will produce CO2 levels matching those of the country of Kenya, East Africa while others claim the emissions will be within British and EU limits, particularly due to investment in public transport to and from the airport.

One thing is certain, Britain and its politicians remain divided. With Hillingdon Council and others spending £1.4 million taking the decision to the High Court, one thing is certain; there will be delays. Like many large-scale infrastructure projects in the UK, there will be some opposition. The question remains, when will we see the expansion of Heathrow?