Chancellor avoids spending spree and defers larger economic policy until autumn
The Chancellor has chosen to give something of a ‘wait and see’ Budget – keeping his powder dry until the Autumn. In what was a Budget that was relatively light in terms of policy and spending announcements, it was a close-call as to whether Philip Hammond made more jokes at the expense of the opposition or significant policy announcements.
January’s public sector finance figures highlighted a £9.4bn surplus, £0.3bn higher than the same month last year.
The Office of Budget Responsibility has revised down its forecast for public sector net borrowing in the current fiscal year to £58.3bn - £16.4bn less than predicted in last year’s Autumn Statement - and, as the Chancellor announced, the growth forecast remains close to earlier projections.
Although monthly reporting of public sector finance progress is useful in that it provides a snapshot of the economy’s short-term health, it serves as noise in the system that distracts from the bigger picture.
The truth is that average net national debt is expected to grow to just under £2tn in the next five years. In case anyone needed reminding, this is the highest level of public indebtedness seen other than in the immediate aftermath of a major world war.
Put into perspective, £1tn has twelve zeroes – 1,000,000,000,000 – a number that simply blurs into a statistical mirage. A trillion pounds is an unfamiliar amount of money to many people and is difficult for taxpayers to get their heads around.
Nobody knows exactly what a post-Brexit economy will look like, nor can they be certain of the financial impact triggering Article 50 will have.
In light of a lack of spending announcements or significant new tax cuts, it’s probable the Chancellor is giving himself a deal of fiscal headroom to cope with any adverse consequences of Brexit that may emerge during the year. This could include issues such as the UK’s departure from the EU, an overhaul of the tax system, growth in the economy, the productivity puzzle, and the growing debt mountain.
It is, therefore, vital that policy makers tasked with getting the public finances back into the black devise a robust and financially-sound strategy that has a long-term vision. This is a four Parliament problem, not one that can be rectified overnight.
It is encouraging the Chancellor resisted the urge to go on a spending spree, but with the national debt now at £130,000 per household and the interest bill forecast to be £46bn per annum in 2017-18, time is clearly of the essence.
Businesses are currently weighing up where they are best located in a world in which the UK is not part of the European Union. The Autumn Budget may be the last-chance saloon for the Chancellor to convince taxpayers and businesses alike that Government does have a durable plan for their money and the wider economy.
Let’s hope he uses the extra time accrued, due to improving public finances, productively.