Budget: Hammond targets first-time buyers as growth forecasts are cut

Philip Hammond scrapped stamp duty on almost all first-time property purchases as he sought to inject good news into his Budget after a series of cuts to the outlook for the economy.

Faced with a difficult balancing act and unrest among his Conservative colleagues, the chancellor also announced £3bn of funding to prepare for Brexit over the next two years, measures to boost housebuilding and investment in infrastructure and training.

Hammond said his Budget was a step to “revive the home-owning dream in Britain” and held out the prospect of “a prosperous and inclusive economy where everybody has the opportunity to shine”.

But his speech was overshadowed by big downgrades to the economic outlook by the government’s fiscal watchdog the Office for Budget Responsibility – which also cast doubt on the effects of the stamp duty cut.

The OBR reduced its forecasts for economic growth over five years. The economy will grow 1.5% this year, down from a prediction of 2% in March. Growth will then weaken to 1.4% in 2018, revised down from 1.6%, and 1.3% in 2019 and 2020, before picking up to 1.5% in 2021, the OBR predicted.

The OBR also cut its estimates for productivity and business investment.

Seeking to seize the political initiative, the chancellor announced that stamp duty would be abolished immediately for first-time buyers on homes costing up to £300,000. First-time buyers of homes up to £500,000 will not pay stamp duty on the first £300,000, taking 80% of those buyers the tax and cutting it for 95%.

Other headline measures included £44bn of capital funding, loans and guarantees to encourage the building of 300,000 new homes a year by the mid-2020s and £1.5bn to address problems with universal credit and £2.8bn for the National Health Service in England over the next three years.

The chancellor also announced £3bn to prepare for the cost of Brexit in addition to £700m already set aside. Hammond, the cabinet’s most prominent pro-EU member, had previously said money would not be allocated until the last minute – a comment that angered Brexit supporters.

Hammond had little room for manoeuvre as he delivered his second Budget. The OBR’s downgrades for the economy’s growth capacity have negative implications for tax receipts and the public finances. Hammond, usually considered a fiscal hawk, did not announce spending cuts in his speech.

The OBR said Hammond had chosen to “deliver a significant near-term fiscal giveaway” that adds £2.7bn to borrowing in 2018-19 and £9.2bn the following year. By 2021-22 Hammond's measures will add £18bn to public debt, the OBR calculated.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The chancellor has been bolder than widely expected and has bowed to pressure to ease the near-term pace of the fiscal consolidation."

However, the OBR said the stamp duty cut would push up house prices by 0.3% and that "the main gainers from the policy are people who already own property, not the first-time buyers".

The move was also criticised by Lea Karasavvas, managing director of Prolific Mortgage Finance, who said the measure would saddle future generations with the cost of solving society’s current problems. “Primary school children have taken a stamp duty bullet so millennials can get on the housing ladder … The whole point of the housing crisis is that demand is too high relative to supply."

Hammond has faced pressure to depart from the austerity script that has guided economic policy since 2010. After the government lost its majority at the June election, campaigners, some business leaders and Hammond’s colleagues have called for investment in housebuilding, infrastructure and public services.

Other measures included an additional £8bn for Hammond’s national productivity fund, a £1.7bn fund for transforming cities and £2.3bn of research and development funding, and tax cuts for North Sea oil and gas producers.