Spring Statement 2018: Philip Hammond signals easing of austerity
- Wed, 14 Mar 2018 02:34
UK chancellor Philip Hammond has signalled an easing of austerity after a decade of severe public spending restraint in a Spring Statement that will fuel demands from Tory MPs for more cash for hospitals, schools and defence.
Mr Hammond described himself as “positively Tigger-like” as he presented upgraded forecasts for the economy and public finances. He claimed that the country had reached “a turning point”, with the burden of public debt forecast to start falling next year.
But any Tory hopes of a big increase in public spending are likely to be dashed, as Mr Hammond set out official forecasts that would leave Britain near the bottom of the Group of Seven economic powers in growth.
The chancellor’s tone was markedly different from his normally austere rhetoric, making light of his “Eeyorish” reputation to proclaim that he was building an economy “where prosperity and opportunity are in reach of all”.
But the chancellor’s innate caution was reflected when he noted that this only amounted to “light at the end of the tunnel”, a signal to cabinet ministers to temper their demands for extra spending ahead of his main Autumn Budget.
Mr Hammond told MPs in a brief statement on Tuesday lunchtime that he would take “a balanced approach”, using any fiscal leeway to bear down on debt and keep taxes low as well as leaving modest room for extra public spending.
He said he was on track to meet his target for borrowing no more than 2 per cent of national income in 2020-21 with £15.4bn of headroom, giving him some room for higher spending on priority public services in the autumn.
But the real battles over public spending will come in 2019, as Mr Hammond announced a multiyear Whitehall spending review that will set the political battle lines for an election scheduled for 2022.
Mr Hammond presented forecasts by the Office for Budget Responsibility, which upgraded its growth projection in 2018 from 1.4 per cent to 1.5 per cent and lowered its forecast for borrowing in 2017-18 to £45.2bn from £49.9bn predicted in November.
But the new forecasts for growth and borrowing did not give the chancellor the £10bn borrowing improvement many economists had predicted and so limit Mr Hammond’s capacity to open the spending taps later this year.
The independent Office for Budget Responsibility ignored recent improvements in productivity growth, judging that the economy needed to slow to keep inflation in check and that some of the improvement in receipts was likely to be temporary.
Mr Hammond put a brave face on the figures. “Forecasts are there to be beaten,” he said. “As a nation, we did it in 2017.”
The OBR’s new forecast for growth for 2018 is slightly below the average of recent independent forecasts and leaves the UK growing less quickly than most other G7 economies.
The OBR predicts that the UK economy will grow by only 1.3 per cent next year, 1.3 per cent in 2020, 1.4 per cent in 2021 and 1.5 per cent in 2022. Over the whole period, the fiscal watchdog slightly reduced the amount of growth it thought was likely.
Public borrowing is forecast to fall from £45.2bn this year to £28.7bn in 2020-21 and £21.4bn by 2022-23.
The OBR also published a profile of spending on the UK’s £37bn “Brexit bill”, with the final payments not falling due until 2064 as young officials in the EU’s Brussels bureaucracy draw down their pensions.
Mr Hammond remained true to his word not to announce any new tax or spending commitments in his first, pared-back Spring Statement.
But he announced several consultations on tax issues, including one to explore how online platforms such as Airbnb can “help their users to pay the right amount of tax”.
The Treasury also published suggestions for how the UK government could tax large digital businesses, along with proposals to ensure that online companies pay value added tax owed to ensure this flows to the exchequer. The chancellor launched a call for evidence on how to tax single-use plastics.