Chancellor offers little more than a holding statement ahead of the start of Brexit negotiations, writes Bill Jamieson.
Better-than-expected figures on the public finances – but the spending squeeze to continue; higher forecasts for economic growth – but fears of a slowdown ahead; rhetorical support for business and enterprise – but a hike in the tax take for entrepreneurs and the self-employed: welcome to the paradox that is Phillip Hammond’s Budget.
The Chancellor’s nickname is “Spreadsheet Phil”. But I suspect the vision before his eyes that informed this Budget was less the fine granularity of Treasury statistics than an impenetrable haze of unknowns.
Neither the Treasury nor many independent economists – those chastened by the glaring forecasting errors in the immediate aftermath of the Brexit vote – are now able to predict with any confidence what now lies ahead once the Brexit negotiations start.
The tendentious nature of such prediction in any event was cruelly on show yesterday, with the Office for Budget Responsibility (OBR) forecast of economic growth in the current year raised to 2 per cent from the 1.4 per cent prediction made in the Autumn Statement only last November.
So this of necessity was a tentative Budget. Nothing wrong with that: indeed, it was refreshingly free of the gimmicks and earnest prolixity that in recent years has turned a once-slim Budget Red Book into a muscle-straining tome of questionable projections and wishful thinking. Fortunately, the content of those pious endeavours of hope over sharp experience are barely remembered.
That is not to say yesterday’s Budget was free of contention. Indeed, arguably its greatest paradox was that in the face of a set of anaemic OBR growth numbers for the UK economy trailing below 2 per cent out till 2020-21 the Chancellor did so little to inspire business investment and enterprise.
On the contrary: a rise in self-employed National Insurance contributions (NICs) and the reduction in the dividend allowance for shareholder directors cut across the rhetoric of a government sympathetic to business and will make life more difficult for those who set up in business.
Mr Hammond also put a marker down yesterday on further changes to narrow the gap between the NICs paid by employees and those in the self-employed sector.
While some comfort may be taken that there will be a review before further measures are announced, it puts a vibrant and innovative sector of the UK economy on notice that its tax bills could be further raised.
For Scotland there is a commitment of £350 million of extra spending over the next three years – though for the SNP administration it will never, of course, be enough.
A bigger bone of contention is likely to be the further delay in specific, practical measures to help the North Sea oil sector and in particular changes that will address the conundrum of huge decommissioning costs working as a disincentive for small operators developing recovery from existing fields.
The biggest question of all, not just for the SNP but Scotland’s economy as a whole, is how to make good the wider consequences of the dramatic decline in North Sea oil revenues to little more than zero over the foreseeable future.
The lacklustre performance of Scotland’s economy over the past two years, with a growth rate well below that of the UK as a whole, is a measure of how much the rest of the economy was dependent on onshore service supply work and specialist engineering: a point overlooked by much of the forecasting and assessment commentary in recent years.
While the Fraser of Allander Institute has recently raised its growth forecast for the Scottish economy this year from 0.5 per cent to 1.1 per cent, this is still strikingly at odds with the 2 per cent growth now predicted for the UK overall.
Hopes have been vested in an oil price recovery to some $70 a barrel. But earlier this week BP revealed its five-year investment plans are based on an oil price of between $55 and $60. So, much thinking has to be done on where economic growth in Scotland is going to come from in the longer term.
However, there were features to be welcomed in addition to the Budget’s cautious reservation and absence of gimmick. Among these was the sharp fall in the estimate for public sector net borrowing this year, down from some £68 billion in the November Autumn Statement to £51.7bn.
However, this owed much to one-off factors, and the PSNB estimate for 2017-18 springs back up to £58.3bn. While further declines are forecast for subsequent years, the figures show that between 2016-17 and 2021-22 the government will have to borrow another £209bn – so much for that much-vaunted “Brexit war chest”: all it amounts to is that we will be borrowing more but at a slightly less frenetic pace.
As for total government debt, this stands at £1.7 trillion or 86.6 per cent of GDP, while the annual debt interest charge is now sucking £50bn a year out of the national accounts.
One of the depressing features of political life in Britain is that there is no lack of noise from some lobbies for higher spending in this or that area of government but one never sees a demonstration in favour of cutting borrowing or bringing down debt. But the debt interest charge alone is now one of the biggest areas of government spending.
Another welcome feature of the Budget was the announcement of reviews on reform of social care provision – long needed, given that there are now half a million more people over the age of 65 compared with 2010.
A pity such a review together with consultation was not carried out before the business rate revaluation and attendant sharp increases south of the Border. Such has been the outcry that Mr Hammond has now had to provide £435m in variety of reliefs.
Consultation ahead of the next revaluation is now promised, before another round of jumping in feet first: a cautionary lesson that could be usefully applied on all significant tax changes.
“Look before you leap” might well be the admonitory motto for yesterday’s package. As it is, given all the concerns over the forthcoming negotiations with the European Union, it could never have been more than a holding statement. A fuller Budget in the late autumn is now awaited – but it could find “Spreadsheet Phil” no less cautious.