Newgate’s Analysis of Budget 2017

On 8th March 2017, the Chancellor Philip Hammond delivered his first ever Budget Statement to the House of Commons. While this year’s Statement was relatively concise and focused compared with previous Budgets, there are a number of important takeaways. Here are Newgate’s five ‘takes’:

  1. Hammond prepares for uncertain times ahead: Despite the OBR revealing better short-term economic forecasts, compared with last November, the Chancellor maintained that the Government would continue with its fiscal plan “undeterred by any short-term fluctuations”. This means that Hammond intends to continue his looser fiscal policy, which he outlined last November, which in his view provides the right balance between deficit reduction, public investment and “preserving fiscal flexibility” – the last of which is clearly related to the economic uncertainty associated with Brexit (although there was no explicit mention of the “B” word in the speech and little mention of the EU). The economic and fiscal outlook over the next five years remains broadly unchanged from the Autumn Statement, with the OBR saying that there has been no “structural improvement” in the public finances. With this in mind, Hammond avoided any major spending commitments and clearly focused on prioritising fiscal stability and credibility ahead of potentially uncertain times.
  2. A deliberately focused and unflashy Budget: Under previous Chancellors (notably Gordon Brown and George Osborne), Budgets had become wide-ranging policy announcements, positioning the Treasury at the heart of domestic policy-making. Hammond’s announcement, however, was strictly focused on economic and fiscal matters with long sections of his speech devoted to explaining technical details of tax changes and largely avoided any headline grabbing measures or ‘rabbits’. This, in part, reflects Hammond’s sober and understated delivery style, but also reflect the new ‘centralised’ process of decision-making under the May Government, with most of the important policy decisions taking place within Number 10, rather than Number 11. To many, this Budget felt underwhelming and largely overshadowed by wider political developments, not least the current progress of the Article 50 Bill in Parliament.
  3. Hammond attempts to head-off negative headlines on social care and business rates: In the run up to today’s announcement, the Government was under considerable pressure from local authorities over social care funding and local businesses in London and the South East concerning the steep rises in business rates. In an attempt to neutralise both issues, the Chancellor committed additional grant funding of £2 billion to social care in England over the next three years and pledged to reform the business rates revaluation process, making it smoother and more frequent and incorporating “the digital part of the economy” in local authority taxation. There will be, of course, considerable scepticism as to whether either of these measures adequately addresses the widespread concerns, but the Chancellor will hope that they will take the heat out of current political debate.
  4. NI increase for the self-employed will be politically controversial: The Chancellor’s announcement to increase National Insurance Contributions from the self-employed is likely to attract considerable attention and controversy. Hammond went to considerable lengths to explain the policy change – emphasising the difference between the amount paid by employed and self-employed and noting its impact on the Exchequer as the numbers of self-employed rise considerably. Nevertheless, this measure will almost certainly encounter political opposition from his own Party due to the fact it (a) arguably breaks the Conservative manifesto pledge on NI tax rises and (b) potentially undermines the Prime Minister’s own narrative on helping out the ‘JAMS’ (those ‘Just About Managing’). Hammond also announced a cut in the tax-free dividend allowance for shareholders and directors of small private firms, which will encounter criticism from the business community. These measures will not be popular, but they do, however, reflect a Chancellor prepared to risk short term unpopularity to tackle thorny and complicated issues concerning the UK’s tax base (to ensure his “stable and competitive tax system”), which suggest a more long-term focus. This also, arguably, dampens speculation about an early election – there were no headline-grabbing sweeteners for the electorate.
  5. The Chancellor’s confidence was telling: Considering that this was his first ever Budget, the Chancellor appeared remarkably relaxed and confident in delivering his statement. This assurance manifested itself in a surprising number of jokes (as a politician, ‘Spreadsheet Phil’ is not normally known for his jokes) and lack of obvious crowd-pleasing announcements. As well as demonstrating a Chancellor comfortable in his role, it also reflects a Government that does not feel troubled by any serious opposition. Indeed, Hammond spent much of his statement taunting members of the Labour frontbench, describing the Party under its current leadership as a “driverless car”. In many ways, the lack of effective official opposition is a defining feature of the current political landscape and will mean that, in the foreseeable future, the Chancellor will be more concerned with his own Party and backbenches, than anything from the Labour Party

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s