Hammond organ transplant

Peter Warburton - 23 November 2017

Barely a month ago, the Financial Times concluded that the Chancellor of the Exchequer, Philip Hammond, would have no room for manoeuvre in this Budget, due to downward productivity revisions by the Office for Budget Responsibility (OBR). Not a bit of it: the Chancellor found £6bn of stimulus for fiscal 2018 and almost £10bn for fiscal 2019. In all, an extra £6.3bn was found for the NHS: £3.5bn for upgrading buildings and improving care and £2.8bn for improving accident and emergency performance, reducing patient waiting times and to meet increased demand.

Has ‘Spreadsheet Phil’ had a heart transplant, or at least a change of heart? The political realities were always tugging this Budget towards a fiscal relaxation and this has duly occurred. The question was whether a dry Chancellor could deliver a wet Budget, and the answer is an emphatic ‘yes’. Those wonderfully flexible fiscal rules have been flexed even further (see table). The extra spending allocation of £3bn to help prepare for EU exit looks rather arbitrary, but will doubtless come in handy for some other purpose.

There is plenty of mañana in this Budget: the fabled 300,000 net additional homes each year is an aspirational target for the mid-2020s. There is also a larger dollop of reality than is commonly found in the official economic projections. The assumed growth of national output falls to the range of 1.3 per cent to 1.5 per cent in each of 2018-2021. Given the pace of population growth, this translates to GDP per capita growth of only 0.7 per cent to 1 per cent in the forecast period.

Expectations for this Budget were ankle-high, but Mr Hammond has achieved a knee-high Budget. Whether it is enough to save his political skin remains to be seen: these measures require formalisation in the passing of the Finance Bill, which will be no easy task given the government’s lack of parliamentary seats. However, there may be sufficient ammunition here to spike the Labour Party challenge and bring some much-needed relief to the embattled prime minister.

One uncomfortable footnote: assumed domestic spending in lieu of EU transfers from 2019-20 will exceed the value of transfers currently made to EU institutions.

Figure 1

 



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