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Philip Hammond: income tax cuts are 'right and moral' McDonnell criticised for backing income tax cut for high earners
(about 3 hours later)
Philip Hammond has defended his decision to implement tax cuts while admitting some government departments could experience further cuts, calling it “right and moral” that the Conservatives follow through on their manifesto pledges. The shadow chancellor, John McDonnell, is facing a backlash after suggesting Labour would press ahead with tax cuts for high earners announced by the chancellor in Monday’s budget.
Philip Hammond brought forward by a year a Conservative manifesto pledge to increase the personal allowance to £12,500, and the higher-rate tax threshold to £50,000.
Interviewed about the budget on Tuesday morning, McDonnell surprised many on his own backbenches by saying Labour would not cancel the cuts, which overwhelmingly benefit higher earners and will cost the Treasury almost £2.8bn next year.
“We will support the tax cuts at the moment on the basis that it will inject some demand into the economy,” he told BBC Radio 4’s Today programme.
He said Labour would then aim to end austerity over the course of a parliament, by increasing taxes on the top 5% of earners and reversing cuts to corporation tax.
Analysis by the Resolution Foundation published on Tuesday found the cuts would overwhelmingly benefit richer households, with almost half set to go to the top 10% of households.
Andy Burnham, the Greater Manchester mayor and former Labour leadership candidate, said he was “at a loss to explain why we are doing this”.
Alison McGovern, the chair of the centre-left Labour-supporting group Progress, said: “We can’t support spending more on tax cuts for quite wealthy people than on dealing with the universal credit mess.”
The Tottenham MP David Lammy said: “We should not be supporting tax cuts that disproportionately help the wealthy.”
Another senior Labour MP and former minister said his party needed to “get into the business of making choices”.
Under the income tax cuts announced by Hammond, the 20% tax band, which currently starts on earnings above £11,850, will rise to £12,500 next year, and the higher rate 40% tax band will begin at £50,000 from April, a jump from £46,350.
Later on Tuesday, the shadow business secretary, Rebecca Long-Bailey, tried to explain McDonnell’s decision, saying the budget offered little else that was positive.
“I think what John McDonnell said was very clear this morning that in the context of this budget we wouldn’t unpick them because there is little else offered to many working people across the board,” she told Sky News. “Those on low incomes are being particularly badly hammered.”
Earlier, Hammond defended his decision to implement tax cuts while admitting some government departments could experience further cuts, calling it “right and moral” that the Conservatives follow through on their manifesto pledges.
The chancellor admitted that the boost to NHS spending would mean real spending remained flat for all other departments, though some, including defence, had been awarded extra cash. Other departments, however, were still likely to face a continued spending squeeze.The chancellor admitted that the boost to NHS spending would mean real spending remained flat for all other departments, though some, including defence, had been awarded extra cash. Other departments, however, were still likely to face a continued spending squeeze.
“We have made our choice to fund health very generously … that means our overall envelope of spending that is available, once you take out the commitment made to health, gives flat real spending available for all other departments,” Hammond told BBC Radio 4’s Today programme. “That’s a choice we make.” “We have made our choice to fund health very generously … that means our overall envelope of spending that is available, once you take out the commitment made to health, gives flat real spending available for all other departments,” Hammond told Today. “That’s a choice we make.”
Hammond, whose budget was criticised on Tuesday for the benefit that income tax cuts will give to the richest households, said the government had made a “very clear commitment” at the last election to raise the personal allowance and the threshold for higher-rate income tax. He said the government had made a “very clear commitment” at the last election to raise the personal allowance and the threshold for higher-rate income tax.
The shadow chancellor, John McDonnell, said Labour would aim to end austerity over the course of a parliament by increasing taxes on the top 5% of earners and reversing cuts to corporation tax. However, he said Labour would not reverse the tax cuts laid out in this budget. “It is right and moral for a Conservative government to deliver on the commitments that we make in our election manifesto,” he said. “People have a right to expect that when politicians go before them in a general election and make a very clear commitment they deliver on that commitment.”
“We will support the tax cuts at the moment on the basis that it will inject some demand into the economy,” he told Today.
Hammond said the tax cuts were made alongside investment in the NHS and increased funding for universal credit.
“It is right and moral for a Conservative to deliver on the commitments that we make in our election manifesto,” he said. “People have a right to expect that when politicians go before them in a general election and make a very clear commitment they deliver on that commitment.”
In contrast, almost three-quarters of welfare cuts announced since 2015 are to continue, including a £1.5bn benefit freeze next April that will result in a couple with children in the bottom half of the income distribution losing £200.In contrast, almost three-quarters of welfare cuts announced since 2015 are to continue, including a £1.5bn benefit freeze next April that will result in a couple with children in the bottom half of the income distribution losing £200.
Defending his decision not to end the freeze, Hammond told ITV’s Good Morning Britain: “We’ve had to take some measures in the past and those measures, some of them, are still working their way through the economy. But what we were able to do yesterday is set out a better future.”Defending his decision not to end the freeze, Hammond told ITV’s Good Morning Britain: “We’ve had to take some measures in the past and those measures, some of them, are still working their way through the economy. But what we were able to do yesterday is set out a better future.”
Analysis has shown that the chancellor chose to spend 75% of his total fiscal windfall of £73.8bn from the Office for Budget Responsibility over the forecast period, but Hammond said he had not “abandoned fiscal rectitude”.Analysis has shown that the chancellor chose to spend 75% of his total fiscal windfall of £73.8bn from the Office for Budget Responsibility over the forecast period, but Hammond said he had not “abandoned fiscal rectitude”.
“In every year of this forecast our deficit will get smaller,” he said, adding that there was still enough “fiscal headroom” to deal with economic shocks, such as a no-deal Brexit.“In every year of this forecast our deficit will get smaller,” he said, adding that there was still enough “fiscal headroom” to deal with economic shocks, such as a no-deal Brexit.
“If there is a shock, we will deal with it in the usual way,” he said. “Very often a shock to the economy can require a boost to spending in the short term, to support demand and keep the economy going. I have been very cautious in maintaining my fiscal headroom … so that if there was a shock to the economy, I have capacity to put further money into the economy.”“If there is a shock, we will deal with it in the usual way,” he said. “Very often a shock to the economy can require a boost to spending in the short term, to support demand and keep the economy going. I have been very cautious in maintaining my fiscal headroom … so that if there was a shock to the economy, I have capacity to put further money into the economy.”
Earlier, Hammond told BBC Breakfast the budget would stand whatever the outcome of Brexit negotiations, and that if a deal was reached he would expect further tax cuts in the spending review next year. He said that review would deal with future spending, including school budgets, over which he was criticised on Monday for giving each secondary school a £50,000 cheque, but no long-term increase.
“What I did yesterday was nothing to do with that process,” he told GMB. “It was simply giving back a little bit of the money that we have saved this year so that schools can buy the odd little piece of kit that they need. I think that’s a nice gesture.”
Budget 2018Budget 2018
John McDonnell
Philip HammondPhilip Hammond
BudgetBudget
Income taxIncome tax
Tax and spendingTax and spending
Health policy
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