This Wednesday’s budget will be one of the most revealing in years. It should tell us if there is any good news about the public finances, after the Chancellor hinted as much on The Andrew Marr Show yesterday.
It will tell us exactly what the UK government is prepared to do about the shortage and affordability of housing that the Prime Minister has made her top priority. It will tell us to what degree the Chancellor is making the finance available for government departments and agencies to handle Brexit, deal or no deal. And, depending on its reception on the Tory backbenches and relative popularity across the country, it will point to whether or not Theresa May continues to command the confidence of the House of Commons as Prime Minister.
As is usual we have already had the leaking of distractions and gimmicks, such as making available public funds for the advancement of driverless cars in Britain. Let’s hope the guidance system of these cars is better than the Treasury’s. Whether it was Osborne, or Darling and Brown before him, the Treasury has constantly had to adjust its now politicised estimates, repeatedly postponing the day when our annual public spending deficit turns to a surplus and the national debt begins to come down instead of go up.
Treasury public borrowing targets? Consistently missed. Brexit recession and mass unemployment? It just didn’t happen.
Philip Hammond’s Budget falls under the stark shadow of Brexit negotiations where the EU continues to press for more of our billions before agreeing to discuss future trading arrangements. Yet the EU has never required any such financial commitment from countries such as Canada that have agreed the same type of deal the UK is seeking to finalise.
While the government’s opponents in the Labour Party and beyond give succour to the EU elite and their outrageous demands, the Chancellor is the one in the know about what the figures are telling him. Yesterday he appeared relaxed and positive.
He gave encouragement to believe that he can and will do something to take house building from the current 217,000 units a year towards 300,000 with what he called “a raft of measures”. He was less forthcoming on the subject of increasing NHS spending once Britain no longer has to pay its EU contribution. Speaking later, Jacob Rees Mogg argued that while there had been no specific promise by the Leave campaign to spend £350 million more a week on the NHS, the promise was implied and the British public would certainly be expecting the NHS to benefit by a substantial amount. He posed the valid question, is it better to give the EU more of our money or direct it towards the NHS?
It may be that the Chancellor is not overly worried about meeting a ransom bill of some £53 billion in staged payments because he knows from a study by City finance expert Bob Lyddon that once we are outside the EU the ability of (mostly) US multinationals to avoid British corporation tax by shifting their UK turnover to other EU jurisdictions, such as Ireland, Luxemburg and the Netherlands must end. Companies such as Google and Apple have announced huge expansion plans in the UK since the Brexit vote and whatever happens in the negotiations those will be seen though with their taxes – estimated at costing our exchequer some £10bn a year – being paid in Britain once again. Post-Brexit the revenue from corporation taxes can be expected to continue rising, making the short term pain for the UK exchequer worth the gain.
Likewise real changes to the numbers and type of EU migrants coming to the UK will be possible, with a shift towards higher paid skilled workers who will contribute more taxes and place fewer demands on public services – because charges for those not contributing towards the costs will become possible and more better paid higher skilled migrants will be more willing to pay for private health, education and housing. The net cost to public services, estimated as high as £30 bn, will begin to fall.
The Chancellor will also want to dodge the bullet of the UK’s exposure to EU risks that remain on our books. Further work by Bob Lyddon together with banking expert Gordon Kerr, published over the summer by Global Britain, has exposed a range of potential liabilities for the UK of over a trillion euros connected to the EU budget, past bail-outs and ongoing banking arrangements, especially with Italy.
Yesterday the Chancellor said that the UK is a country that honours its debts. What then would he propose if some of these liabilities were called in?
As the EU budget is joint and severally liable the UK is legally exposed to paying the entire cash portion of about €650bn. While it is unlikely to be called in, so long as we are in the EU we are on the hook, and it is not the only risk. The UK remains liable for up to €444bn until 2020 for the “Commitments Appropriation” portion of the EU Budget, in bailing out Portugal and Ireland in 2010, and in making loans to dozens of countries and projects inside and outside the EU. In addition, the UK could have to pay out an extra €35.7bn to the European Investment Bank and €1.4 bn to the European Central Bank on top of the capital we have already paid in of €3.6bn, meaning €40.7bn at risk in all. Most worrying is what Lyddon and Kerr have described as the “alchemy” of recapitalising the non-performing loans (NPLs) of Italian banks worth €360bn through “transubstantiation” into sovereign bonds.
If these NPLs continue to perform pitifully, as past experience suggests, an eventual default will bring down not just the banks but Italy itself. That will not be allowed to happen so the EU and the ECB and EIB will crystallise the losses across all EU taxpayers, including the UK – until Brexit happens.
With heavy irony it therefore falls on the Remain-supporting Chancellor to help us dodge these bullets and rebuild our public services and the finances that provide them.
Wednesday’s event is no ordinary budget. If he gets his sums wrong and fails to convince his critics he can help make Brexit happen, expect a new prime minister, and even another general election.