This was Philip Hammond’s first Spring Budget but, as he said himself, his last. From now on, there will be just one annual budget statement, every autumn. The Chancellor looked relaxed yesterday and even cracked some pretty good jokes at Jeremy Corbyn’s expense.
Faced with weak opposition, though, Hammond delivered a centrist, somewhat Blairite budget, rather than a package backing wealth-creation and entrepreneurs. Worse than that, he spectacularly failed to get a grip on the UK’s wayward public finances.
The budget headlines are rightly focused on the rise in national insurance contributions for the self-employed. Breaking a manifesto pledge, and for the relatively small annual sum of £145m, seems strange. And to knock those who are driving the UK’s employment boom, the self-employed workers at the heart of our flexible, dynamic “gig economy”, is illogical. Expect these measures to come under attack over the coming days, not least from the Tory backbenches.
Controversial specifics, though, must not be allowed to detract from longer-term concerns regarding the big picture. And the big picture is that, for all his rhetoric about “no complacency” and “debt that is still too high”, the Chancellor yesterday unveiled some quite shocking borrowing projections. Almost a decade on from the financial crisis, the UK’s national accounts remain drenched in red ink.
The budget documents show that growth this year has been significantly upgraded from 1.4pc to a rather buoyant 2pc – which, as the Chancellor noted, is “second only to Germany among the G7 economies”. Yet, despite all that extra growth, the fine print reveals only a very modest fall in projected borrowing this year – from £55.5bn forecast at the time of the 2016 Spring Budget to £51.7bn.
Next year, however, for all Hammond’s talk of “responsibility” and “hard decisions”, borrowing is actually set to rise – to £58.3bn, dramatically up from the £38.8bn officially forecast in that same 2016 Spring Budget. With the fiscal year about to turn, Jeremy Corbyn will, within a matter of weeks, be able to point from the Commons Dispatch Box and sneer: “You Tories talk tough about budget responsibility, but borrowing is now going up”.
Comparing the 2016 Spring Budget with yesterday’s document is actually rather instructive. This time last year, Chancellor Osborne (remember him) said he’d borrow a total £38.8bn during the four years from 2017 to 2020 inclusive, with the UK running a budget surplus during the last two years of that period.
Since then, despite improving growth, the borrowing numbers have exploded. Hammond is set to borrow no less than £141.1bn on our behalf over the next four years – a jaw-dropping three and a half times more than Osborne predicted just 12 months ago. Despite his pre-statement spin about “not spending the budget war chest”, our newish Chancellor has given up even trying to balance the books.
It gets worse. We will continue to chalk up annual fiscal deficits, the budget documents indicate, beyond the official five-year forecasting window. The Office for Budget Responsibility predicts the UK won’t now achieve an annual surplus, on current spending trends, until 2026 – a full quarter century since our last annual surplus in 2001.
It is important, amidst justifiable rows over business rates and NICs, to highlight such uncomfortable realities. This time last year, a few months ahead of our referendum on European Union membership, at the height of the institutional gloom-mongering that was “Project Fear”, Osborne was planning a budget surplus by 2019. Today, even though the British economy has remained buoyant despite our vote to leave, “confounding expectations” as Hammond said, the current Chancellor has abandoned even the pretence of achieving a surplus.
Hammond “will not saddle our children and grandchildren with ever-increasing debt,” he said yesterday. Yet, by endorsing annual deficits for many more years than his predecessor, each of which will be added to the national debt, that is precisely what he is doing. Already, the UK government spends the thick end of £50bn on debt interest annually – more than we spend on defence, more even than on schools. And that’s at a time when Treasury yields are suppressed by on-going quantitative easing, the government’s borrowing costs effectively nailed down by printed money.
With the US Federal Reserve now in tightening mode, and the global interest rate cycle turning, the only way for interest rates is up. As our national debt grows and rates rise, then, our debt interest bill will spiral. Despite years of “austerity” rhetoric, Osborne presided over a doubling of our national debt – which now tops £1,700bn. And yet, the ludicrously named “Spreadsheet Phil” makes even Osborne look like a paragon of fiscal virtue.
Disappointing in terms of the fiscal big picture, Hammond’s statement was also deeply unimaginative when it came to Brexit. It was astonishing, in fact, that during the month in which Theresa May must Trigger Article 50, the Chancellor barely mentioned our plans to leave the EU.
With our Brexit negotiations about to start in earnest, the Chancellor could have used his Commons set-piece to say at least something to reassure the public, while strengthen our bargaining hand with the other 27 EU members. Once we’re outside, to what extent will the government support UK farmers and British research and development? What preparations are being made to operate outside both the single market and the EU customs unions, as the Prime Minister has said is her plan?
I don’t expect detailed plans but I do expect, as the world looks on, at least a show of resolve from the Chancellor, as assertion that prospective trade deals with various non-EU countries are shaping up nicely, a statement that, if it comes to it, the UK will be just fine with no trade deal with the EU, operating under World Trade Organisation rules – not just because such a statement makes eminent political sense, but because it happens to be true.
This was a dull budget, which is fine. The less we tamper with what remains a pretty fragile UK economy, the better. But even dull budgets can demonstrate clarity of thought and conviction. This last spring budget showed neither.