Autumn Budget 2018: What to expect from Philip Hammond
5 min read
As Philip Hammond prepares to unleash his Autumn Budget on Westminster next week, here's our guide on what to look out for.
Next week kicks off with the Chancellor’s Autumn Budget. It’s unusually early in the parliamentary schedule in order to make room for November’s crunch Brexit summit, if it goes ahead. It’s also unusually early in the week (it normally happens on a Wednesday) but will be later in the day (3.30 rather than 12.30ish).
It’s also a historic Budget, being the last one – spring statement aside - before Brexit happens in March next year.
So, what can we expect?
Brexit Budget
Brexit looms large over Philip Hammond’s statement, especially as he has regularly warned of the dire economic implications of leaving the EU, particularly if no deal with Brussels is reached. He hasn’t earned his Eeyore nickname for nothing.
In August he said crashing out of the EU could have “large fiscal consequences” for the UK. More recently the National Institute of Economic and Social Research quantified a £30bn difference over the next five years between a deal and no deal scenario. Expect some scary stats like that to be sprinkled throughout the set-piece, partly because Hammond’s prone to Brexit negativity and partly to focus minds in Westminster in preparation for the meaningful vote.
But what about the bus?
Those who believed the now infamous bit of writing on the side of a bus that promised hundreds of millions in extra cash for the NHS a week after Britain leaves the EU might be disappointed. While the Government has announced money for the health service, it won’t be from the fictitious Brexit dividend any time soon, if ever.
The Institute for Fiscal studies, which produces the holy grail of economic analysis, has said the extra cash flowing into the Treasury from ending EU contributions will be around £1bn a year by 2022/23, which seems like a lot but actually falls within a margin of error. The think tank described it as “virtually” non-existent. So if the Chancellor or anyone else references the Brexit dividend, they’re having you on.
Is austerity really over?
Apart from Brexit there are other political themes that will dominate the day. Theresa May promised at last month’s Conservative party conference that austerity was over, but it’s the Chancellor who will have to put the money where his boss's mouth is. And journalists, as well as political opponents, will be reading the small print on Monday to find out if the policy delivers on the headlines.
According to the Resolution Foundation it would take an £31bn of extra spending by the end of this parliament to end austerity, so the Government may well fall short.
The deficit and the back-of-the-sofa billions
Despite the anti-austerity rhetoric, fiscal Phil will still want to stick to his targets on deficit reduction. Under the Tories, deficit pledges have consistently been pushed back as events inevitably get in the way. Hammond’s latest promise is to keep the deficit within 2% of GDP by 2020/21 and eliminate it altogether by 2025 – although the Office for Budget Responsibility thinks 2031 is probably more realistic.
On a more positive note though, he was handed an extra £13bn to play with this week when the OBR revised its borrowing forecast. Kerching!
What has Theresa May already promised?
A lot of that cash is already earmarked to make good on promises made by the Prime Minister. For the NHS, Hammond will have to find an extra £20bn by 2023.
Also set to unbalance Phil’s balance sheet is May’s announcement at conference that borrowing caps on councils will be lifted to fund new housebuilding – there’ll be no figures on that yet though.
What else could happen?
Pressure has been mounting on the Treasury to find an extra £2bn for their troublesome welfare policy, Universal Credit. If they don’t, Hammond won’t hear the end of it. Read our handy explainer here.
The Chancellor might also be forced to scrap plans for a £100m beer duty hike, after 54 Tory MPs wrote to him denouncing the move, which would add 4p to the cost of a pint.
Tax grabs
It has been rumoured that the Treasury could pull back on plans to raise the personal tax allowance to £12,500. That would free up money for other things like Universal Credit, but risks a backlash from some Tory backbenchers, with whom the policy is popular.
Gas companies could be in the fiscal firing line as well, with Hammond previously saying he was looking at “equalising the tax between gas and electricity”.
One place extra tax will not be coming from is fuel duty, after May announced in her conference speech it would be frozen for the ninth year in a row.
Other things to note
Labour’s response… The opposition will of course be peddling the line that austerity isn’t really over, and they’ll probably have some fancy social media content to drop on the day.
The vote… which is usually a formality, but the DUP and some Brexiteers have threatened to go against the Government on the Budget in protest over Brexit. It’s probably all hot air - but who knows these days?
And finally, have sympathy for… the IFS number-crunchers who stay up all night making sense of the Budget so we don’t have to.
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