Today the Chancellor Philip Hammond used his third annual budget to try to bolster support for Theresa May’s Brexit plan, having come under increased domestic political pressure to end an eight-year run of public spending cuts following the ‘end of austerity’ announcement from the Prime Minister at the Conservative Party Conference earlier this month.
Over the weekend the Chancellor had warned MPs that his proposed new spending splurge would be put at risk if Parliament were to vote down the final Brexit deal. This thinly veiled threat was aimed as squarely at the Brexit end of the Labour benches as at the unruly Tory MPs sitting behind him ahead of his appearance in the Commons this afternoon.
Hammond would have been aware that this strategy does of course carry the risk of antagonising Tory hard-liners as Brexit negotiations enter their final stages. Nevertheless, he chose to double down on the message Treasury officials distributed at the weekend in confirming that without a deal, his budget — and the public spending promises that go with it — would need to be replaced with an emergency rethink.
Following the Prime Minister’s announcement in Birmingham it was always clear that Downing Street would have its finger-prints all over the detail of this Budget, making it less the brainchild of ‘Fiscal Phil’ than the previous two years. As such, the subsequent spending announcements should be viewed as less Hammond in nature and more in tune with a government trying to convince the electorate that the end of austerity was more than a misguided soundbite to combat Labour’s attacks on the Conservative’s lack of domestic focus amidst the ongoing Brexit turmoil.
The Prime Minister had therefore set her Chancellor the unenviable task of spending more in order to neutralize Jeremy Corbyn’s anti-austerity rhetoric whilst also appeasing Tory backbenchers enough to keep them mollified on the domestic front whilst Brexit D-Day approaches. Hammond had to dangle both carrot and stick this afternoon.
Addressing the Commons the Chancellor promised that is this would be a “Budget for hard-working families” and told MPs “we have reached a defining moment on this long, hard journey” after repairing the damage to the public finances caused by the financial crash and the last Labour Government.
The main deductions focused on a new tax on large digital businesses, a tightening of rules on people who work through their own company, the reversal of the 2016 decision to abolish Class 2 National Insurance contributions for the self-employed and the restriction of the NICs employment allowance to small businesses.
There were plenty of additional giveaways, including raising the income tax personal allowance to £12,500, increasing the generosity of universal credit and the traditional one-year freeze in fuel duty rates. Public services spending outside health also gets a boost rising to £3.2 billion by 2022-23, so that it no longer falls in real terms over the forecast.
Despite these raft of new spending measures there was a sense that today’s Budget was a mere appetiser to the main meal of financial importance taking place in 2019, when the big long-term spending decisions will be made in the post-Brexit Departmental Spending Review. Today provided no further clarification on when this would take place.
It wouldn’t be a Philip Hammond budget without some “fiscal headroom” and the Chancellor was cute enough to add the caveat in his closing remarks that some economic wiggleroom would be required if he needed to alter his economic plan should Britain leave the EU without a deal.
With exactly 5 months to go before the UK’s Brexit departure date, today the Chancellor banked on MPs being more inclined to back plans to start spending that he hopes will be popular with voters rather than to risk the potential chaos of a messy ‘no deal’ divorce with Brussels.
Tory MP’s will therefore be hoping that the Chancellor’s loosening of the purse strings will act to appease austerity-weary voters in the long term, all the time aware that Jeremy Corbyn’s Labour Party have planned an explosion in public spending should there be a snap-election in the coming months.
For his part, the Chancellor will be hoping that Monday’s budget has persuaded his own party that the best way to tackle Corbyn and re-establish the economic credibility built up under former Chancellor George Osborne is to move to secure the country’s finances and start spending. But as ever with everything this Government has to deal with, that depends on striking and ratifying a Brexit deal to appease all corners of the country.