Hammond unlikely to escape the Halloween metaphors
Chancellor’s task of delivering budget against backdrop of Brexit a perfect nightmare
Philip Hammond has broken with the tradition of delivering the autumn statement on a Wednesday – October 31st, also known as Halloween. Photograph: Chris Ratcliffe/Bloomberg
Having to deliver a budget three weeks early is hard enough for any chancellor, let alone with Brexit looming. It’s harder still when the books don’t balance and yet your prime minister has publicly declared an “end to the age of austerity”.
But having to deliver that knife-edge budget on Halloween was clearly a step too far for Philip Hammond.
Mindful, no doubt, of the risk of headlines such as “Hammond’s house of horrors”, the chancellor has broken with the tradition of delivering the autumn statement on a Wednesday – October 31st – and will instead stand in the House of Commons on Monday, October 29th, to outline his tax and spending plans.
Depending on what he delivers, Hammond may still find himself unable to escape the Halloween metaphors for a budget that had to be brought forward to avoid a clash with crucial Brexit negotiations.
End of austerity
Hammond’s nightmare task of attempting to balance tax and spending plans against the backdrop of Brexit – and Theresa May’s declaration of the end of austerity, including higher spending on the National Health Service – has been given a boost by an unexpected £13 billion (€14.7 billion) a year windfall.
The government’s independent forecasting body, the Office for Budget Responsibility (OBR), has underestimated the strength of recent tax receipts and, as a result, will slash its borrowing forecasts for the next five years.
These new figures, which are expected to entail the biggest revision to borrowing forecasts since the early 1980s, will be revealed on Monday, as Hammond makes his budget speech.
According to the Financial Times, the stronger than forecast tax receipts will cut the deficit by £13 billion for the current financial year. The underestimation of tax receipts apparently stems from the government statistics body, the Office for National Statistics, failing to take the stronger than expected tax inflow into its figures, thus underestimating the size of the economy.
The OBR also admitted that it tends to overestimate deficits in its own calculations. The combination of the two has created the £13 billion bonus.
For Hammond, the last-minute windfall means he should be able to avoid raising taxes to fund the government’s commitment to increase spending on the NHS.
While it’s a substantial sum, however, it’s nowhere near substantial enough to fund the prime minister’s pledge on the ending of austerity, the cost of which has been put at as much as £35 billion a year.
But it has at least given Hammond some good news ahead of a budget in which he will be attempting to make as few waves as possible. There are no rabbits to be pulled out of hats on Monday, but Hammond is widely expected to target the pensions system, where he recently described the tax relief on offer as “eye-wateringly expensive.”
Further news is expected on the so-called “Amazon tax” on sales of digital companies, the government’s attempt to level the playing field with struggling bricks and mortar retailers.
We can also expect Hammond to hold out the prospect of a “Brexit bonus”, something he has referred to a number of times in recent months, where a “good Brexit” would not only boost economic forecasts and tax revenues but would also enable the treasury to release the £15 billion fiscal buffer it has built up.
After all, the company is headed by staunch Leave supporter Sir James Dyson, one of the most vocal backers of Britain’s exit from the EU. The Dyson founder is on record as saying Brexit will provide a unique opportunity to “supercharge” the UK economy.
But not with a new Dyson electric car plant, it seems. Explaining the decision, Dyson managing director Jim Rowan pointed to the complexities of the global supply chain, noting that Dyson already employs more than 1,000 people in Singapore, making electric motors for products such as fans and vacuum cleaners. The number will more than double when the new plant is completed in 2020.
Huge Chinese market
The company is understood to have talked to a number of governments, including the UK, before making its final choice. But the proximity of Singapore to the huge Chinese market was thought to be one of the decisive factors in its favour.
Dyson was at pains to stress that Brexit was not a factor in the decision. Whether or not that’s true, it’s disappointing that someone who believes the nation’s economy is about to become “supercharged” couldn’t back that up with a tangible vote of confidence in post-Brexit Britain.
Fiona Walsh is business editor of theguardian.com