Philip Hammond faced three main problems in the run-up to this Budget, in ascending order of potential impact on his own political fortunes. First, the unknowns of Brexit make it difficult to implement the programme of spending and tax cuts that right-of-centre commentators tend to call for. Second, the Conservative Parliamentary Party is in no mood for the alternative of spending cuts and tax rises that tend to mark post-election budgets. Third, his own brand has been damaged by Theresa May’s evident distrust of him; the hostility of some Tory MPs over what they see as his foot-dragging on Brexit, his severe limitations as a communicator (“there are no unemployed people”), and above all by the foul-up over NICs in his first Budget. Put simply, he could not afford to mess up yesterday.
Budgets that go well on day one have a tendency to unravel on day two. And the Institute for Fiscal Studies has not yet crunched the numbers: that will come later today. But, as we write, the Chancellor has achieved his unambitious but elemental aim of…surviving. His means of doing so was to take a leaf out of George Osborne’s book. Two years ago, the then Chancellor found £27 billion down the back of a sofa – in other words, in the forecasts. He used it not to pay off borrowing but to avoid painful cuts, make some pleasant tax changes, and (more broadly) to buy off his critics. Today, his successor, in essence, spent £26 billion that he himself found in that same sofa last spring – deploying it to help the economy a bit and himself a bit more, by getting Number Ten and his Conservative colleagues of his back.
There was £2.8 billion to head off trouble over the NHS (less than either Simon Stevens or Boris Johnson would want); £1.5 billion to calm his critics over Universal Credit; £1.7 billion for better transport links for devolved cities, the Northern Powerhouse and the Midlands Engine, plus a splash of £360 million or so for the Tyne and Wear Metro and Trans-Pennine Trains. There is over £3 billion if one tots up the money for electric cars, artificial intelligence, tech, and R & D: goodness knows where some of that money is going. The Chancellor was self-referentially careful to avoid getting into a tangle on VAT thresholds or taxes on White Van Man. Thresholds for the income tax personal allowance and higher rate have been raised with inflation. No hostages to fortune this time round.
We recognise that the Chancellor is in a tight corner. That’s why we urged him last week to shape-shift from Spreadsheet Phil to Storyteller Phil today, and try to tell a tale of what this Government is for – one that May missed the chance of telling at last month’s Conservative conference. Hammond didn’t exactly meet the challenge. Maybe it is a reach too far for his starched-shirt persona. But he did sound more positive about Brexit, getting it out of the way early in his statement, and allocating £3 billion or so for contingency. And he managed enough of the meeting-technological-challenge stuff to sound vaguely future-orientated – even bullish, by his standards. He finished with a traditional Chancellor’s rabbit-from-hat in the form of a stamp duty cut for some first-time buyers.
If any part of the Budget has unravelled so far, it is probably this bit. The Office of Budget Responsibility assumes that the cut will simply raise house prices: “the main gainers from the policy are people who already own property”. There is a wider sense that the housing package is underwhelming. The £44 billion in capital spending is less impressive than it looks once one wrestles with the small print. But the key questions are not so much on the demand as the supply site. It isn’t clear whether five garden cities can be built, or a million new homes be delivered along the Cambridge-Milton Keynes-Oxford corridor by 2030, without further liberalising planning reform. (The Oliver Letwin review of the permissions-to-homes lag sounds like a lot like the Government limbering up for compulsory purchases.)
So far, so deft – politically, anyway. However, there was a discontinuity between the jokes in the Chancellor’s text – such as his ribbing of Michael Gove over the “economicky” bit of the speech – and the gravity of our national challenge. It is easy to write off the OBR’s lower-growth forecasts, and easier still to blame them on Brexit. But what they show most of all is that the OBR has given up believing that more growth will bring rising productivity with it. Low productivity is becoming the Achilles heel of the British economy, together with the depressed wages it brings with it. If Hammond did little to fix it today, in this economicky-survivorish-escapy Budget, don’t dump the blame on him, or on an exhausted and demoralised Treasury. Look back instead to the election last summer, which robbed May of her majority.