Chancellor Philip Hammond is finalising his first, and in the current format his last, Budget. The Chancellor pays careful attention to the detail and unlike a few of his predecessors can actually understand what a column of figures means. He is temperamentally less susceptible to the temptation of stuffing his Budget with gimmicks than some Chancellors, but he would be less than human if the odd crowd pleasing announcement did not appear. Budgets after all are as much political as economic events and this one is going to be tough.
Following the Brexit referendum the British economy has defied many predictions and continued to flourish. The pound may have depreciated but the economy has continued to grow, jobs are being created and investment made. Productivity on the other hand has continued to stagnate, which it has done since Labour’s great recession, which presents a serious issue for industry and government.
Brexit, of course, has not actually happened yet. The UK has not yet left the European Union. As far as UK business and economy are concerned no-one knows what impact, for good or for ill, Brexit will have. The only certainty lies in the fact that Brexit is now a process rather than an open question. Whilst that Brexit process dominates Westminster politics, beyond the bubble pressure on services and infrastructure continues to grow, and this will be what is uppermost in Hammond’s mind next Wednesday.
The Chancellor faces several daunting tasks. His overarching job at the Budget is to maintain confidence in the UK as a place to do business and invest; to retain and strengthen the credibility of the Government’s economic policy; and to show clearly the Government continues to have a coherent plan for funding essential public services and infrastructure.
An early indicator of his determination to maintain a tight rein on spending is the launch of an Efficiency Review by Chief Secretary David Gauke and Cabinet Office Minister Ben Gummer. Both Ministers are trusted by the center of government to deliver results without fuss. They have tasked departments to save between 3% to 6% in savings. At the same time funding for the NHS and schools was excluded from the review, ie protected, and a guaranteed year-on-year increase in defence spending was confirmed. Coming on top of all the savings that have been made so far since the Government came to office this represents the continuation of a tough spending stance. A quick look at the national figures shows why its necessary.
Public and private borrowing is at an all time high. That productivity problem – which means it costs us more and takes us longer to make something or do something than many of our competitors. At the same time the demands for more money for schools, health and care services continue to increase. As a former Defence Secretary Philip Hammond should know all too well the Armed Forces need further investment. Local government too is continuing to face tough times. What is in effect a significant national tax increase in Council Tax is being faced by householders in all but four council areas. The proposed Business Rates increase caused sufficient political trouble for a promise to ameliorate the impact to be made.
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Some reports suggest the Chancellor has between £6-£29 billion in unexpected tax receipts to “play with”. It’s worth remembering the Government has no money of its own. It is our money, taxpayers money. If the Treasury finds itself with more revenue than expected it should primarily focus on paying down the National Debt. Philip Hammond should resist any gimmicks suggested by his officials and seek to shrink the cloud of public debt (£1.8 trillion and rising) that hangs over the country. As well as further reductions in public spending and local government tax increases, some form of national tax increases are anticipated Here Matthew Taylor, Chief Executive of the RSA, may well have an influence on taxation around self-employment. In addition, further new and innovative ways of involving the private and voluntary sectors in both investing in and delivering national and local services needs to be found.
The fact that the Chancellor is keeping a firm grip on spending and not apparently shying away from the tough decisions bodes well for the maintenance of confidence in the UK. But it will require focus and discipline from the Chancellor’s ministerial and parliamentary colleagues in what continues to be the long haul back to balancing the nation’s books and putting the UK back in the black.