Martin Flanagan: Chancellor on a hiding to nothing

Today's headline act, Chancellor Philip Hammond, has got a fillip from much lower-than-expected public borrowings in October,

Chancellor Philip Hammond is like a magician 'devoid of hat and rabbit', writes Martin Flanagan. Picture: Stefan Rousseau/PA Wire
Chancellor Philip Hammond is like a magician 'devoid of hat and rabbit', writes Martin Flanagan. Picture: Stefan Rousseau/PA Wire

However, thinking it gives him scope to galvanise infrastructure spending in his Autumn Statement is almost certainly over-optimistic. Such economic snapshots do not change the underlying weaker economic picture.

The UK is still a deeply cash-strapped nation, and the Chancellor has limited room for manoeuvre. The good news is that October borrowings fell to £4.8 billion.

That is 25 per cent, or £1.6bn, lower than a year earlier, while City economists had forecast a worse figure of £6bn. A surge in VAT receipts and corporation tax both gave a tailwind to October’s performance.

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However, that is where the good news runs into the sand. The latest public deficit number means the shortfall for the seven months of the 2016-17 financial year so far is £48.6bn.

That means Hammond can only borrow less than £7bn for the final five months of the financial year if he is to meet the latest Office for Budget Responsibility fiscal watchdog forecast of a £55.5bn deficit for the whole of this financial year. Looks unlikely.

In many ways, Hammond is on a hiding to nothing, a magician devoid of hat and rabbit. Theresa May’s new government sensibly dropped the previous Cameron/Osborne administration’s aim to balance the books by 2020 after the Brexit vote altered the landscape irrevocably.

But the government still wants to be seen to be responsible fiscally even if the deadline has been ditched. The Chancellor is actually set to up his public borrowing forecasts today. The October borrowings boost will then seem autumnal.

That two-way pull will see him wanting to do what he can on infrastructure, with all those deja-vu “21st century broadband” and “economic arteries” soundbites.

However, something has to give when there is not enough money in the till. And that is why last month’s better than feared borrowing figures have to be viewed coolly.

Just as economists bide their time and don’t get excitable over quarterly GDP figures, monthly borrowing can be volatile and leads the dismal science practitioners to hang fire on the optimism.