Philip Hammond must have hoped that the big reveal of Wednesday’s budget – the abolition of stamp duty for first-time buyers up to £300,000 – would be its most newsworthy feature.
But his revelation soon after he stood up in the House of Commons that Britain’s economic growth forecasts have been downgraded cast a shadow over the rest of his speech.
The independent Office for Budget Responsibility (OBR) now believes GDP growth will remain about 1.5 per cent for the next five years. This is a sharp drop from the 2 per cent until now viewed as Britain’s sustainable growth rate and the first time growth is not forecast to reach 2 per cent at any time over a five-year horizon.
As economic and productivity growth remain low, borrowing will rise as the chancellor's ambition to eliminate the deficit recedes beyond view. The budget releases some extra funds for the National Health Service (NHS) and to ease teething problems in the rollout of universal credit, a new social welfare payment, which is causing great hardship to some people on low incomes.
But the increases are too small to satisfy the government’s critics and public spending overall will remain flat. Where Hammond is spending is on infrastructure, notably releasing £44 billion for loans and other measures to promote house building. The gloss disappeared from his stamp duty announcement within minutes, as the OBR said it would help to buy only about 3,000 more houses and would have the broader effect of pushing up prices.
The chancellor found an extra £3 billion to prepare for Brexit, although it was not immediately clear how or when it will be spent. The money is a sop to Brexiteers in the Conservative Party who view Hammond with suspicion, complaining that he is too preoccupied by the potential harm leaving the European Union could do to the British economy.
The downbeat economic news delivered in the budget will antagonise the Brexiteers and one of the glummest faces on the government front bench on Wednesday belonged to international trade secretary Liam Fox. The cause of his gloom became clear later when it emerged that his department will lose £100 million in funding over the next few years.
Although his budget delighted nobody, Hammond can draw some comfort from the fact that, unlike his previous fiscal events, this one had not yet blown up in his face by Wednesday night.