Hammond Says U.K. Spending Cuts Possible to Offset Tax U-Turn

  • Social care, education, business-tax relief funding sought
  • Chancellor says new ‘revenue raisers’ or cuts are likely

U.K. Chancellor of the Exchequer Philip Hammond suggested he may have to make spending cuts in his autumn budget to fill the gap in public finances created when he was forced to scrap his plan to raise insurance taxes for the self-employed.

Hammond, who was lambasted by many in his own party for seeking a tax change viewed as a breach of the Conservative manifesto, told reporters at the G-20 finance ministers meeting in Baden-Baden, Germany, that the money pledged to education reform, social care and business tax relief would have be found elsewhere. Taxes covered by the Tory Party’s tax lock would not be touched, he added.

"To the extent that we don’t have these revenue raisers anymore we will have to replace them either with alternative revenue raisers or with spending reductions," he said. "There is no money tree. We have to do one or the other."

Hammond was forced to reverse course a week after presenting his March 8 budget as a Conservative rebellion threatened Prime Minister Theresa May’s slender 17-vote majority. The move left him politically weakened and seeking a way to fill the 2.1 billion-pound ($2.6 billion) hole created over four years by abandoning the proposed increase in the Class 4 national insurance contribution rate to 11 percent from 9 percent by 2019.

Hammond said national insurance was the only tax measure in the Tories 2015 manifesto --made before David Cameron was re-elected -- that had presented any ambiguity, and ruled out future increases to sales tax and income tax as well. He did suggest other ways to raise revenue would need to be found, suggesting other levies would be open to increases. 

"There will be no increases to the various taxes that are covered by the locks," he said. "That is not an option available to us nor is reducing the spending commitments that are similarly protected by manifesto commitments in this parliament."