As I See it
Trick or treat in pre-Halloween Budget?
Who would be Chancellor of the Exchequer? Raise your hands! Oh quite a few…As Monday’s Budget approaches I’m sure we could all play the game of what Philip Hammond should spend more money on (that’s the easy part), and which taxes he should raise or cut.
The Budget will be the last before Brexit and Mr Hammond will present his forecasts and commitments without the benefit of a full assessment of what the economy will look like and even how Britain will trade post March next year.
As such, he will be taking a few shots in the dark in the hope that his statement does not cause too many pre-Halloween frighteners for his already divided Cabinet colleagues and offers some treats to ease the pressure on his beleaguered boss next door.
There are many complicating factors beyond just trying to get the books to balance. There’s a decision to be made on what sort of deficit is manageable, which means how much borrowing he is prepared to take on – knowing that it will add to an already huge national debt (£2.094 trillion) that our grandchildren will be paying long after we’v gone from this earth. Or can he get the UK into surplus – the first time since 2002?
These strategic decisions matter, because the interest alone on the UK’s debt burden is already costing £41bn a year, just shy of our defence spending at £49bn, but far more than the housing budget of £31bn or the transport budget of £35bn. Reducing the debt can get the debt interest down and leave more room for current spending.
Mr Hammond must factor in the Prime Minister’s new commitment to spend £20bn more a year on the NHS and her announcing an end to austerity, which many take to mean an end to prudence.
The existential problems also need to be taken into account – the two largest being what will Brexit bring and the changing demographics of the country which means the number of seniors (and therefore benefit recipients) is growing.
Mr Hammond is blessed with a relatively benign economic outlook: record numbers of employed and a 40 year low for unemployment. Earnings are beginning to recover again and public receipts have been climbing, helping to reduce the deficit. Nevertheless, there could be some shocks and they might have an impact on Treasury receipts.
Even so, for all the talk of austerity the UK’s welfare bill has risen from £62.08bn in 1998 to £90.35bn 2008 and an estimated £112.73bn this year. A £22.38bn increase in 10 years? That’s UK austerity for you.
Then there’s that other headache – the cycle. No, not that boneshaker Boris Johnson jumps on around London, the fact that the economic cycle would normally have turned by now – the period of continual economic growth is unusual and there is much speculation that it will come to an end on Mr Hammond’s watch. If it does, revenues will fall, social costs will climb faster and colleagues and critics alike will all be demanding he spends even more.
With that context laid out, what can we expect from our Chancellor? Apart from a few jokes (he’s not as dour as his demeanour suggests) he has been making a good few asides about new taxes (an “Amazon” tax being one) and freezing tax allowances rather than raise them in line with inflation. Personally , with the current febrile state of the Tory party, I think that would be political suicide and lead to a backbench rebellion. It is more likely that he has been flying kites so that he can shoot them down and create a feeling of optimism and opportunity.
There is a health warning, however. Last year the bold Mr Hammond said he would deliver a tax cut for the self employed – a section of the workforce that put £252bn into the UK economy last year. Since then he has gone back on his promise to cut Class 2 NIC contributions that would have put £130 in these strivers’ hands. Be it Brexit or tax cuts, Tories have a problem with delivery.
For his own supporters, whom he really has to cheer up and win over, there are constant demands to stop behaving like the Labour Party by coming up with too-clever-by-half schemes to intervene in markets by spending money or providing subsidies and simply cut taxes to generate greater economic activity.
The main targets are England’s Stamp Duty, which is seen as holding back the housing sector – and business rates, where there’s a growing belief that something has to give to help retailers and town centres. We shall see, but this author has little faith in a Chancellor who has thus far shown a lack of positivity, when it is needed most.
So who wants this job? I see far fewer hands going up. It’s not as if Philip Hammond is short of advice – there are lunches, briefings, letters, reports and social media campaigns all telling him (and his minions) what he should do. A cursory glance using the hashtag #Budget will give you a flavour. There are so many desperate situations needing remedied and all of them require public money.
No sooner has Mr Hammond’s Budget been delivered there is another one in early December from Derek Mackay in Scotland. He has many of the same problems, but fortunately he has a kindly uncle, a sugar daddy. Yes, it’s Uncle Philip, from 11 Downing Street. Thanks to his annual bequest, topped up by Mr Barnett’s formula, he underwrote Scotland by £13.4bn last year to help balance Derek’s books.
What will Derek get this year? And just what would Derek do without his kindly uncle? Well, that’s another story and another column, but by Monday evening we’ll at least know the answers to some of it.