Hammond’s Conservative Budget
In the first economic statement since the disastrous June election, Philip Hammond was being asked to deliver the impossible – spending growth and goodies for voters in the context of rising borrowing and lower growth. In what Shadow Chancellor John McDonnell described as a ‘nothing has changed’ Budget, the Chancellor did his best given the limited room for manoeuvre and continued Brexit uncertainty.
Although he announced a series of very modest stimuli, the economic picture looks grim. The Office of Budget Responsibility’s assessment is blunt: ‘growth downgrade and budget giveaways push the deficit higher’. Conservative MPs will be nervous that growth forecasts have been significantly revised downwards all the way to 2022 when Brexit should have happened and a general election is due.
Yet despite the gloomy economic picture, Philip Hammond showed a politically deft touch that many felt he lacked. There were surer signs of an emerging political narrative – preparing for the future – and even some jokes which added a degree of levity.
He made a series of announcements designed to neutralise political criticism that has damaged the Tory brand. An NHS cash boost, major house-building plans and immediate action to alleviate problems with Universal Credit show the Tories have listened. Meanwhile the headline stamp duty cut for first time buyers is a bold gesture that signals the clear need to appeal to younger voters.
However, the OBR’s suggestion that the main beneficiaries of the stamp duty cut will be existing homeowners gaining from rising property prices could take the shine off. Furthermore, the fact that more money has had to be set aside to plan for Brexit contingencies than is being spent on the NHS will strengthen Remainer criticism, with commentators quickly pointing out that was not the message on the side of the bus.
But overall Hammond has done enough to avoid a pounding in the press, steering clear of measures that might have alienated voters. Fuel duty is frozen, as well as beer, cider and spirits. The VAT threshold for small business was not lowered as had been suggested in recent media reports.
There was even some cheer for business with planned reductions in corporation tax and the business rate cut brought forward two years earlier than planned. However, increases in air passenger duty for business passengers, removing allowances on corporation tax and clamping down on unoccupied business property show that ministers feel they can afford to incur business attacks.
Furthermore, the intention to raise revenue from digital sales and further action to clamp down on VAT fraud and error shows that ministers want to be seen to be acting tough in response to media and public pressure.
Overall, Theresa May will feel comfortable that the Chancellor delivered a steady Budget that has not so far bombed and whose mild provisions seem at this stage to be unlikely to be defeated on the floor of the Commons. That was the test for today, which shows how low expectations are.
Today’s statement underlined just how acute the challenges remain. The economic forecasts are poor; borrowing and inflation are up and Brexit negotiations are dogged by uncertainty. But for now Philip Hammond seems to have done enough to restore some faith in his ability to continue as Chancellor.