March Budgets are a dying breed. As Philip Hammond revealed last November, the annual Budget will take place in autumn from now on, accompanied by a smaller statement in spring. This week’s Budget will be the last of its kind.
This creates a bit of an existential quandary. Wednesday’s Budget finds itself sandwiched between last year’s Autumn Statement – which, as Hammond’s first major set-piece as Chancellor, was bigger than they usually are – and another Budget later this year. So, what will it be? A full Budget in its own right? Or simply a stopgap?
These questions will, of course, only be answered when Hammond rises to the Despatch Box. But the current expectation is that he won’t have too much to say.
The biggest news on Wednesday probably won’t be a policy at all, but rather the new official economic forecasts that will be supplied by the Office for Budget Responsibility (OBR). In the Autumn Statement, as we reported at the time, the OBR downgraded its growth forecasts in view of the result of the EU Referendum. A total of 1.2 percentage points was shaved off the country’s growth prospects for this year and 2018.
But now some of those percentage points are likely to return. The respected EY Item Club is expecting this year’s growth forecast to rise from its current 1.4% to 1.6% or 1.7%. However, it’s worth remembering that economic forecasts are always uncertain, and more so now than usual. No-one really knows what the full effects of Brexit will be.
If the economic outlook does indeed improve, then the Chancellor stands to benefit – and not just from kinder headlines. Government borrowing is already on a downwards trajectory; in November, the OBR predicted it would be £3.5 billion lower this year than the last. But it could come down even faster, thanks to stronger than expected tax receipts - in the first ten months of this financial year, government borrowing was already £13.6 billion lower than in the equivalent period of 2015-16.
This would leave the Chancellor well on course to meet his fiscal targets, and with some money to spare. So will he put some big giveaways in this week’s Budget? Apparently not, according to the man himself. Writing for last weekend’s Sunday Times, Hammond dismissed ‘huge spending sprees’ as ‘reckless, unsustainable and unfair’.
That said, Chancellors generally can’t resist a bit of spending – particularly when that spending is good for the economy, as is the case with infrastructure investment. Hammond himself has already established a special fund, worth £23bn, to improve the nation’s roads, railways, housing and more, over the next five years. He might be tempted to add to this, or at least to fill in some of the blanks around potential projects such as HS3 and Crossrail 2.
The greatest uncertainty surrounds what, if any, tax and benefit changes the Chancellor will implement. As we reported recently, a review of the Plug-in Car Grant rates is due this month, which might include news of whether the scheme is to be extended beyond its current deadline of March 2018. Hammond could decide to wrap this in with his Budget, although it could be kept separate.
If this were a typical Budget, we’d also expect news on everything from Income Tax thresholds to the Company Car Tax rates for five years hence. But this isn’t a typical Budget, and these things might be left for later in the year.
Or they might not be. Inflation is expected to hit 3% this year, so the Chancellor could try to help families with the rising cost of living. Such support could take the form of a bigger increase in the Income Tax personal allowance, or perhaps even a cut to Fuel Duty. Who knows? This Budget is one-of-a-kind, after all.
By shifting Budgets to the autumn, it turns out that Hammond has bought himself some time. There are certainly big questions hovering above our politics – the squeeze on family budgets, the implications of Brexit, the productivity problem, etc. – but no-one really expects them to be answered on Wednesday. Come November, the situation may not be so forgiving.
We’ll be covering the last Spring Budget tomorrow - please join us then for our live updates.