Sir Michael Fallon has given his first speech in the House of Commons since he resigned as defence secretary at the start of this month in the wake of the sexual harassment scandal saying his conduct had “fallen short” (he didn’t specify how). He spoke earlier this afternoon in the budget debate. He didn’t say anything about the circumstances of his resignation but instead gave a fairly wide-ranging speech (in the course of which he revealed, among other things, his inner Lib Dem).

Here are the main points.

• Fallon urged the Treasury to considering moving towards aligning the national insurance threshold with the income tax allowance. He suggested it was not logical to keep raising the allowance (currently £11,500, but going up to £11,850 next year), but not the national insurance threshold (currently £8,164). He said:

A full-time worker on the national living wage pays almost as much in national insurance as in income tax. Those working part-time, for example £25 hours a week, earning between £8,000 and £11,000, they miss out as we increase the thresholds, and I hope my honourable friends will look at that again.

In the past this has been Lib Dem policy. At the 2015 election the Lib Dems proposed aligning the national insurance threshold with the income tax threshold.

• He proposed use tax incentives to promote more employee share ownership. He said:

Employee-owned companies are more productive, they are more profitable, and isn’t higher productivity, isn’t that the golden fleece for which my right honourable friends keep searching?

We need not just one John Lewis Partnership, we need a thousand John Lewis Partnerships across our economy.

Let us incentivise our companies with a lower tax rate to offer free shares to all of their employees.

• He said Britain should reject “muddling along mere managerialism”. He said:

A fairer economy, much wider employee share ownership, exporting at the heart of every Government industrial programme; these are some of the necessary steps towards our new economic future.

Let us agree across this House, Brexiteers and Europhiles alike, that muddling along mere managerialism is not going to be enough. Brexit Britain demands a bigger vision, more confident, outward-looking, self-rewarding, let us build on this successful, sensible budget to enable Britain to be bolder still.

• He said he would be using his freedom as a backbencher to call for more defence spending. He said he would “find an early opportunity to speak out on the right level of defence spending to meet the threats that our country faces, and to do so more freely than the constraints of government allowed”.

Down at the Resolution Foundation’s post-Budget breakfast roundtable in St James’s Park over croissants and coffee this morning, former Treasury permanent secretary Nick (now Lord) Macpherson had some waspish words about the chancellor’s stamp duty cut for first-time buyers.

The independent Office for Budget Responsibility found that the main beneficiaries of the stamp duty cut would be existing homeowners, because it will inflate prices.

But Macpherson - who oversaw many budgets - said Hammond won’t mind too much about that. He said:

I wouldn’t get too hung up on the impact on transactions and first-time buyers: this is a relieving tax on the government’s core supporters. The vast majority of young people can’t afford to buy any house and probably won’t for many years to come; but the proportion of the population who can - no doubt with the help of their parents - stump up the odd £250-300,000 is the sweet spot of Tory Middle England. So people who claim it’s bad value for money get it slightly wrong. It’s all about shoring up political support.

On the wider budget package, he said:

There are some perfectly sensible policies in this budget. The sad thing is they will have very little impact because they are so small. It’s a perfectly reasonable political choice - you’ve got to fill up a budget speech, and there’s always that choice between one big measure and spreading your largesse rather more thinly, and that is what the chancellor has done. It makes perfect sense in political terms: perhaps less sense in economic terms.

Here are the key points from Paul Johnson’s presentation at the IFS.

• Johnson, director of the Institute for Fiscal Studies, said the budget forecasts show the UK is in danger of losing two decades of earnings growth.

[The forecasts] now suggest that GDP per capita will be 3.5% smaller in 2021 than forecast less than two years ago in March 2016. That’s a loss of £65 billion to the economy. Average earnings look like they will be nearly £1,400 a year lower than forecast back then, still below their 2008 level. We are in danger of losing not just one but getting on for two decades of earnings growth.

• He said, even though it was a giveaway budget, austerity would carry on.

Yet this is not the end of “austerity”. Not by a long chalk. There are still nearly £12 billion of welfare cuts to work through the system, while day-to-day public service spending is still due to be 3.6% lower in 2022–23 than it is today. Excluding health the cut for the rest of public services is over 6% - to keep this spending constant in per capita terms spending would need to be £13 billion higher in 2022-23 than currently planned.

• He said public spending plans were so tight that he thought ministers would have to relax them.

Day to day spending on public services outside of the NHS is due to fall by yet another 7% over the next five years. In truth I would be amazed if that actually happened. The last few years have been marked by constant (small) upgrades to implausibly tight spending plans to avoid problems in prisons, social care and now health. There will almost inevitably be more such top ups in the years ahead.

• He said public sector workers should not expect an above-inflation pay rise on the basis of the budget plans.

While the public pay cap has been lifted no additional money has yet been allocated and the Treasury is committed to providing extra money only for nurses. Given the spending constraints, other public sector workers should not be holding their breath in anticipation of an inflation busting, or perhaps even 1% busting, pay rise.

• He said, based on the current rate of growth, it could take half a century to get national debt down to its pre-crisis levels.

The trouble with lower projected growth rates though is that they imply debt being higher over time for any given level of borrowing. Debt fell rapidly after the second world war whilst we still ran modest deficits because nominal growth was strong. The sorts of modest growth rates currently expected imply that, if we were to maintain the deficit at the just over 1% of national income projected for the early 2020s, it would take us until well past 2060s for debt to fall to its pre-crisis levels of 40% of national income. That assumes no recessions for the next half century.

• He said Hammond’s emphasis on investment spending in the budget was “brave”.

• He said building more homes would not on its own enable more people to become home owners. Other reforms were needed too, he suggested.

Suppose we do get 300,000 new homes a year. Might that reverse the fall in home ownership among the younger generation? It’s important to think clearly here. That fall up to now is not because young people are living nowhere, it’s because they are renting from older people who have bought properties to rent out because that provides a good return. Older, richer people might continue to buy these new properties. They will stop doing so only when they take the view that the return in terms of rent and capital gain is not worth their while – the consumption value of housing needs to rise relative to its investment value. That’s how the actuality and promise of more house building can tip the scales in favour of younger buyers.

• He said even though the stamp duty cut would increase prices, first-time buyers would still benefit.

It’s also important to think clearly about the impact of stamp duty. The OBR has said that the price faced by first time buyers might rise twice as much as the saving in stamp duty. Stamp duty cuts do lead to price rises. The price rise can be bigger than the duty cut in part because properties are transacted multiple times and in part because of the leverage effect – if I pay £1 less in stamp duty I can put down £1 more deposit, meaning I can obtain a larger mortgage. So the £1 cut allows me to spend more than £1 more on a house.

But this does not mean first time buyers are worse off as a result. They are in general better off. Instead of paying, say, £100,000 for £98,000 worth of house plus £2,000 of tax they might be paying £102,000 for £102,000 worth of house. That’s a better outcome for them.

• He said Brexit was not to blame for the growth forecasts being revised down in this budget.

The economic impact wrapped up in [the OBR] forecasts is the same as they made a year ago based on what they describe as some fairly “broad brush” assumptions. Just to recap on what the OBR said a year ago. Their view then, accepted by government, was that the Brexit vote would result in a £15 billion a year deterioration in the public finances. They have not changed that judgment. The additional slow down in this year’s forecasts are not put down to Brexit.

Last week, when MPs were debating the EU withdrawal bill, they voted down an amendment tabled by the Green MP Caroline Lucas that would have transferred the EU protocol on animal sentience set into UK law, thereby guaranteeing that animals would continue to be recognised as sentient beings under UK law. It was defeated by 313 votes to 295.

The government said it was opposed to the amendment because it was unnecessary and potentially confusing. Dominic Raab, the justice minister, told MPs that animal sentience was “already recognised as a matter of domestic law, primarily in the Animal Welfare Act 2006”.

But that did not stop it being reported on social media (and in some mainstream media outlets that should know better) that MPs had voted to reject the idea that animals can feel pain. The “story” has been widely shared. For example, this Independent article, headlined “The Tories have voted that animals can’t feel pain”, has had 488,000 shares.

As my colleague Martin Belam reported yesterday, Conservative MPs have been fighting back on social media.

And this morning Michael Gove, the environment secretary, has gone one step further. He was issued a written ministerial statement insisting that last week’s vote was not a vote against animals being able to feel pain. He says:

It has been suggested that the vote last week on new clause 30 of the EU withdrawal bill somehow signalled a weakening in the protection of animals - that is wrong. Voting against the amendment was not a vote against the idea that animals are sentient and feel pain - that is a misconception.

Ministers explained on the floor of the house that this government’s policies on animal welfare are driven by our recognition that animals are indeed sentient beings and we are acting energetically to reduce the risk of harm to animals – whether on farms or in the wild. The vote against new clause 30 was the rejection of a faulty amendment, which would not have achieved its stated aims of providing appropriate protection for animals.

The prime minister has made clear that we will strengthen our animal welfare rules. This government will ensure that any necessary changes required to UK law are made in a rigorous and comprehensive way to ensure animal sentience is recognised after we leave the EU. The withdrawal bill is not the right place to address this, however we are considering the right legislative vehicle.

In his written statement, Gove highlights animal welfare measures the government is already taking, such as making CCTV mandatory in slaughter houses, consulting on a five-year jail sentence for animal abusers and proposing a wide-ranging ivory trade ban.

He also claims that being in the EU is preventing Britain from introducing even tougher animal welfare rules. After Brexit Britain could do more to tackle issues like puppy smuggling, he claims.

Once we have left the EU there is even more we could do. EU rules prevent us from restricting or banning the live export of animals for slaughter. EU rules also restrict us from cracking down on puppy smuggling or banning the import of puppies under 6 months. Article 13 [the relevant EU law] has not stopped any of these practices – but leaving the EU gives us the chance to do much better. We hope to say more in these areas next year.

The Irish broadcast RTE has got hold of an internal report written by the Irish foreign ministry summing up what EU ministers and officials have been telling its diplomats about Britain’s handling of the Brexit negotiations. Europe is not impressed, the RTE report says. It says the report paints “a negative and deeply unflattering picture of Britain’s performance in the Brexit negotiations”. Here’s an excerpt.

The opinions voiced by EU ministers and senior officials to Irish diplomats reflect widespread pessimism and even scorn about the British government’s negotiating position.

Some EU figures talk of “chaos” in the British government.

The report reveals that at a meeting between David Davis, Britain’s Brexit secretary, and the French ministers for defence and European affairs, Mr Davis barely mentioned Brexit.

This was much to the surprise of his hosts, who had regarded the meeting as an opportunity for Mr Davis to unblock French resistance to negotiations graduating to the next phase ...

A minister in the Czech government told his Irish interlocutors that Britain’s foreign secretary Boris Johnson was “unimpressive”, but that at least he had “avoided any gaffes” during a visit in September.

The Czech deputy minister for foreign affairs Jakub Dürr told officials “he felt sorry for British ambassadors around the EU trying to communicate a coherent message when there is political confusion at home”.

John McDonnell, the shadow chancellor, has also been giving interviews this morning. The most striking moment came when he he got involved in a tetchy exchange with Today’s Mishal Husain who asked him repeatedly how much extra it would cost the government every year to service the national debt under Labour’s plans for extra borrowing.

McDonnell said the cost would be “minimal”, but he could not put a figure on it, and claimed that the question was “trite”.

Here is an edited transcript of the exchange.

MH: Yesterday when you were asked about the amount that it costs us at the moment to service our debt, you struggled. What I want to ask you is do you have a figure for how much more it would cost to service our debt every year under Labour?

JM: The type of journalism where you go into an interview and someone asks you a question on a particular figure, to be honest, is a trite form of journalism. That’s why we have iPads, and that’s why I have advisers, etc. So let’s get back to the reality of this ...

MH: I asked you about servicing the national debt, which costs about £48bn a year at the moment. How much would it cost under Labour?

JM: What we would do is ensure that day to day spending was not paid for by borrowing, it would be paid for through our tax system, and that we would stop the tax giveaways to the rich and the corporations, and that we would only invest for our infrastructure. And that investment would pay for itself on the basis of the growth we would achieve. And that’s a one-to-one return.

MH: What would it cost in the servicing of the debt? How much would it add to the £48bn figure?

JM: We are now at the stage where interest rates are so low that ensuring that you borrow in that initial phase, and you borrow in a way which grows the economy, particularly on infrastructure ...

MH: Interest rates are going up.

JM: Yes, but they are still at historic lows ...

MH: We all know that you would borrow to invest. The question I’ve asked you a couple of times now is how much would it would add to the servicing costs?

JM: It is minimal, because interest rates are so low. We are literally talking about it paying for itself, a one-to-one multiplier. That’s the standard analysis by the OBR and others ...

MH: If you were elected today, how much above £48bn would we pay to service our debt next year?

JM: It’s an absolute minimum because it would be returned rapidly to you ... It pays for itself.

MH: You have also said it’s minimal. I’m wondering what the figure is. Do you know?

JM: It pays for itself.

MH: How does borrowing something pay for itself? When you borrow, there’s a cost.

JM: Because immediately that infrastructure puts more people back into work, they pay their taxes and as a result of that you are able to cover your costs. Simple as that.

Here is some audio of the exchange.

The BBC’s Laura Kuenssberg says she is surprised McDonnell did not have a figure to hand because this issue came up in an interview yesterday.

Q: Is £3bn enough for Brexit planning?

Hammond says that is what he thinks he will need.

But if we need more, we will find more.

John Humphrys is interviewing Philip Hammond.

Q: Do you ever think there is no point? Chancellors make predictions and they don’t come true.

Hammond says what happened yesterday was that the Office for Budget Responsibility downgraded its forecast for productivity improvement. For years it kept predicting growth that did not happen.

Philip Hammond’s budget seems to have “landed” well, as they say in Westminster lingo. The Tory-leaning papers like it, and no-one has identified a policy so flawed it that it will have to be abandoned (as happened in the last three budgets). One of the biggest problems is the fact that the Office for Budget Responsibility says says Hammond’s stamp duty cut for first-time buyers will just push up prices, so that sellers end up gaining more than buyers. But Hammond, who has been doing a round of interviews this morning, has dismissed this criticism. He told the BBC:

The OBR looked at a particular narrow question - if you reduce stamp duty and don’t do anything else what would happen?

But we have not done ‘nothing else’, we have introduced a very big package, £15bn of extra money going in on top of the billions we are already spending on housing to increase the number of houses that we build in this country.

So that’s not the situation we will have. We will have many more homes available.

The important thing is that over the next five years, over the life of this parliament, a million first-time buyers will make an average saving of just under £1,700 when they buy their first home. I think that’s a good news story.

Hammond is about to be interviewed on Today. I will cover than in detail, and then summarise what he has been saying in all his interviews, and what John McDonnell, his Labour shadow, has been saying.

Here is our overnight budget story.

And you can read all the Guardian’s budget coverage here.

Here is the agenda for the day.

8.10am: Philip Hammond is interviewed on the Today programme.

8.30am: The Resolution Foundation publishes its budget analysis.

9.30am: Liam Fox, the international trade secretary, takes questions in the Commons.

Around 11.30am: David Gauke, the work and pensions secretary, gives a statement to the Commons on universal credit.

1pm: The Institute for Fiscal Studies holds its post-budget briefing.

As usual, I will be covering breaking political news as it happens, as well as bringing you the best reaction, comment and analysis from the web.

You can read all today’s Guardian politics stories here.

Here is the Politico Europe round-up of this morning’s political news from Jack Blanchard’s Playbook. And here is the PoliticsHome list of today’ top 10 must reads.

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