This is no normal Budget

As Budget day looms, Treasury official turned academic Andy Westwood looks at what is set to be an extraordinary political event.
This article is more than 1 year old

There are some Budgets that are major political set pieces. They are packed full of drama and surprise announcements, designed to deliver maximum political advantage.

There are some chancellors who spend most of the year planning to make them so. Gordon Brown and George Osborne were both masters of the political arts. Announcements, like lifting the student number cap or boosting science and research, have been part of the theatre of recent Budget days. But this is not one of those Budgets and Philip Hammond is not one of those chancellors.

Budgets used to be sacrosanct. Leaks – excepting deliberate ones were unheard of – no one (sometimes not even Prime Ministers) knowing the contents until the day itself. But that’s not how Budgets work these days. Now the Prime Minister reveals what is in the Budget weeks and months in advance and today Philip Hammond will have to tell us how he is planning to pay for it.

Many groups and campaigns still queue up for funding or for special tax treatments. The Association of Colleges have put together an impressive campaign calling for 5% year-on-year increases to FE funding rates and for support to improve staff pay. The Joseph Rowntree Charitable Trust is calling for cash boosts to universal credit in order to tackle in-work poverty.

Both are likely to be disappointed. Because this is not that kind of Budget.

Neither is likely to get much attention or money. Nor are those on the right of the Conservative Party – the hardliners in the European Research Group might be desperate to see some optimism and spending of the “Brexit dividend”. But they know that Hammond isn’t that kind of Chancellor. Which is why they would prefer him not to be Chancellor at all.

The three biggest themes of this Budget are already well established. The first is the pledge to increase long-term funding for the NHS, originally made by the Prime Minister in June. That increases spending by around £20 billion per year and eventually to £26 billion in 2023-24.

The second is that, according to Theresa May at least, the end of austerity is in sight. That promise at Conservative Party conference earlier this month will have been news to officials in HM Treasury. It makes Labour’s job of responding to the Budget rather easier than it will be for the chancellor to put it together. Philip Hammond wants any end to austerity linked to agreeing a Brexit deal with the EU.

This takes us to the third and perhaps the biggest theme of all – the idea that it is possible to plan ahead when no one yet knows what deal we will get or what it will mean for the economy.

This is not the kind of political or economic guesswork that the Treasury likes. And so this is not a normal Budget. At the moment the range of possible outcomes range between a Norway-style “half in and half out” deal to a “no deal” that might involve concreting over Kent, shipping in emergency medical supplies and government officials spooning out Spam from a tin.

Treasury models and forecasts don’t normally operate with such a wide margin of error.

Add Hammond and HMT’s famous scepticism about any Brexit dividend and you can see them being backed rather forcefully into a fiscal corner. No one at HMT is optimistic about Brexit and the problems mounting for the end game negotiations have forced Hammond to bring forward the Budget date. If only to kick the tin of Spam a little bit further down the road.

At one point both May and Hammond hoped they could deliver a later Budget after a deal had been done. After the recent EU summit that became unlikely and so an inevitably more cautious, constrained Budget was brought forward. To a cold Monday in October.

But there still isn’t very much money around to pay for anything. That includes the Office for Budget Responsibility’s new forecasts showing that borrowing in 2018-19 will be about £13bn lower than forecast in March, promising that this improvement will persist throughout the next five years. Welcome though an annual windfall of £13 billion is, it barely scratches the surface of extra spending on the NHS or estimated costs from the Institute of Fiscal Studies and the Resolution Foundation of somewhere between £20 and £31 billion to end austerity.

Hammond has already teased the BBC by saying “we may have to raise a little more tax in order to support the NHS and deliver on our pledge”.  But any major tax increase, like more difficult spending decisions, will be pushed back to the spending review in 2019. That should happen after the exact nature of Brexit is clearer. Already in opening negotiations with departments across Whitehall, the Treasury has asked for 5% savings.

This brings us to the prospects for education in both the Budget and the spending review. There will certainly be no windfalls for schools, colleges or universities from DFE coffers. BEIS remains more “cash rich” and is still finding ways to get its industrial strategy money out of the door. Amid the gloom and uncertainty, Hammond may choose to announce the odd shiny building, sector deal or investment fund from the R&D war chest he first announced in 2016.

But there will be no big reveals on HE funding with both the Office for National Statistics and Philip Augar still to report. These decisions will, like so many others, roll forward to the spending review.

According to the FT last week, Philip Hammond is said to lament a dearth of political grown-ups around the cabinet table. None of his instincts for pragmatism or caution are particularly popular. Instead, there are competing visions for Brexit and competing egos for political attention. But Hammond is pessimistic and even in the event of a hard-won deal or an extension of a transition period, he and his Treasury officials expect economic conditions to worsen.

The biggest variable before him is by how much. Not even Liz Truss, Chief Secretary to the Treasury, telling him about British cheese and selling pork products to China is going to shift that. Nor is a Prime Minister who is prepared to throw the kitchen sink at anything that might keep her in No 10 for just a little bit longer.

When Gordon Brown was running No 11, he used to joke (quite often) that there were only two types of chancellor; unlucky ones and those that “got out just in time”. By this measure, Philip Hammond’s time in office has not just been unlucky, but may prove to have been the worst timing imaginable.

These are not normal times. These are not normal politics. And this is not going to be a normal Budget.

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