In the spring, around the time Philip Hammond was preparing his first budget, some of those close to him suggested that the March budget was never intended to be that special because he was saving his big, structural changes for the autumn. Since then, the world has moved on somewhat and he came to the Commons today having made little impact with pre-budget announcements and with the expectation bar at what seemed like a Treasury all-time low. It felt as if he would be doing well not mess up.
And actually, by those criteria, he has succeeded. The budget was well received by his colleagues and, so far, nothing has fully unravelled. True, the Office for Budget Responsibility has exposed his main headline-grabbing measure, the abolition of stamp duty for first-time buyers for homes worth up to £300,000, as a £600m gimmick that will just push up prices. But, even though it would be nice to live in a world where bad policy always amounts to bad politics, sadly we don’t, and it is hard to see Hammond suffering any penalty for his home owner subsidy (apart from when he realises he has not got £600m to spend on something else). The Tory tribe (MPs and newspapers) will never complain about a tax cut, and it is not a measure that will be voted down in the Commons. (For example, we can’t even be sure Labour will vote against it.)
Otherwise, it was a mildly expansionist budget, with Hammond turning the taps on to the value of £9bn just as the UK is leaving the EU. The Tory Brexiters who view Hammond with suspicion will like the extra money for hard Brexit contingency planning. Hammond did a bit to allay concerns about universal credit. And there was some more money for the NHS. Not enough, NHS England say, and Hammond’s failure to even mention social care shows that this was not a budget with long-term ambition. But it will probably see him through. For now.
That’s all from us.
Thanks for the comments.
The reaction to today’s budget in the financial markets is quite muted.
Although building firms have been hit by the threatened clampdown on land banks, the FTSE 100 actually ended the day up 0.1%. The pound also shrugged off the growth downgrades, it’s up half a cent against the US dollar and flat against the euro.
Because the OBR’s new downgraded growth forecasts basically tell the City what it already knew – the UK’s economy faces a challenging few years, and the productivity puzzle remains unsolved, despite the measures Hammond announced today.
The OBR hasn’t thrown in the towel completely on productivity. Its new forecasts are mid-way between the good old days before the crisis, and the sloth-like progress since.
But there’s still a lot of uncertainty about whether technology improvements will actually deliver productivity benefits in the years ahead. And without it, Britain will keep racking up debts…
Richard Buxton, head of UK equities at investment manager Old Mutual, argues that little has changed economically today.
Hammond may have used a little sleight of hand (the reclassification of housing associations being an obvious example) to give himself a little headroom at this juncture.
In practice, however, he appears to have kept the vast majority of his powder dry, cognisant that there may well be a time, as Brexit approaches, when more radical action is merited.
The history books may also record today as the moment that the government gave up making a profit on the bailout of Royal Bank of Scotland. Selling that stake will help cut the national debt by £15bn, but will also crystallise a lose of around £26bn (based on today’s share price).
Liberal Democrat leader Vince Cable says it’s a “desperate” move.
Lib Dem leader Vince Cable urged caution after the budget revealed plans put a deadline on when the government will start selling its £24bn stake in Royal Bank of Scotland, by March 2019. Cable said the share price meant it was the wrong time to sell the shares at their current price. He told reporters:
Today’s share price I believe is far below the acquisition price and we always argued in the coalition. Osborne accepted it was utterly wrong to start selling shares before you can recoup the basic taxpayer outlay and then you have to allow for a bit of inflation.
So that would be rather desperate I think. And we know there are these continuing legacy problems around RBS. This is not the time to sell the shares in RBS.
The former business secretary said the chancellor had been severely restricted by the downgrading of the growth figures and the unexpected rise in borrowing, which he estimated would cost every person £700 per year compared to pre-election forecast.
The chancellor talked about Britain being the sixth biggest economy in the world, as long as I can remember it was the fifth, but it is now the sixth. This is France overtaking the UK in the last year, India is fairly close behind.
Cable, who said he backed much of what the government was doing on skills and industrial strategy, also expressed concern about the £3bn allocated to Brexit preparations.
The fact they are having to pay that upfront on the possibility we will crash out is revealing and politically very damaging.
The £3bn does not deal with the massive economic dislocation of Brexit, which is multiple many times that. This is the physical infrastructure costs associated with the change in the regulatory regime, it’s a tiny fraction of the costs associated with Brexit.
Angela Rafferty QC, chairman of the Criminal Bar Association, has criticised a planned £600m cut to the Ministry of Justice’s budget. She said:
The poor and vulnerable in society are being denied access to justice. Whilst the official budget statement is silent about this vital pillar of state we can see from the spending forecast that there will be a £600m reduction in an already meagre and inadequate budget for the ministerial department, a reduction for the Ministry of Justice resource budget of 9% over two years to £6bn by 2019/20. The budget for justice is now forecast to fall an initial £400m next year from £6.6bn in 2017/18 to £6.2bn in 2018/19, then to £6bn for 2019/20. The system is desperate; it cannot endure any more cuts.