Lansons Conversations

Phil the magician weaves his magic

On Budget day, the media and commentators trot out those traditional clichés that the Chancellor should be a ‘magician’ and ‘produce rabbits from a hat’ as though we should be witnessing some form of entertaining spectacle. The reality of a Budget statement is that it regularly fails to deliver anything other than a complicated shopping list of promises, re-heated announcements, and the occasional surprising tax raid, or tax benefit, on a sector. 

This Budget comes in a period of continued political instability, and during a process of dis-engagement from the EU which even the most optimistic of observers would say is unclear and troubling, so what we should take from today’s statement? 

We should seek to understand, I believe, these three things: do we know enough about the state of the UK economy to give us confidence in this Government; do we know enough what this means for UK politics and the prospects for the Brexit negotiations; and are we comfortable, or not, about what it means for us individually.

On the latter if you’re a first-time buyer you should be happier not having to pay stamp duty for properties under £300k, but expectations of prices rising to ‘accommodate’ this are already circulating, not least from the OBR. The detailed package of other measures on personal tax, duties, and on the public sector were detailed, complex, and in places quite significant: more resources for the NHS, a focus on education and especially maths skills, business rates and some VAT relief for SMES, and a personal allowance upgrade for all in work.

On the former, is the UK economy in good shape?  No, it seems.  The economy is slowing down, as is national productivity.  This is expected to mean lower tax receipts in the next few years, and greater borrowing, so any economic balancing is still further away.  So, for the longer term – the rest of this Parliament – the picture is not so good, yet the short-term measures announced today, significantly allowing a loosening of spending in the public sector is designed to appeal to audiences the Government needs to address.  Changes to Universal Credit helping those less well off: tick.  More resources to the ‘front-line’ in the health service for all in society: tick.  Help to SMEs on their tax burden to help them grow: tick.  Helping Millennials to get on the housing ladder with lower costs: tick. 

And while those audiences may reflect that the Government has listened and has acted, the benefit is most felt on its own backbenches.  Conservatives MPs grumbling about their leadership and handling of Brexit, arguably have something positive to say in their constituencies.  This may shore up the Conservative’s fragile Minority Government in the House of Commons but it has a price to pay.

The real problem is that the shadow of Brexit still looms over the announcements today.  An extra £3bn is necessary to help in the short-term preparation of the UK’s divorce from the EU, and we still do not know what that actual final divorce bill will look like.  It would seem this ‘elephant in the room’ was deemed not necessary to focus on in today’s statement, yet this has an impact in the next two years.

My assessment is that the summation of all of this is that the Government are probably a little safer than they were perhaps before today’s statement.  Small measures on fuel and alcohol duties do go a long way to assuaging the ‘man in the street’ view that there is ‘nothing for me’ – there is. Some measures are also deliberately Labour-esque especially focusing on a cohort (younger people) in society who found Labour more appealing at the last election.  A lot of people are unaffected by today, and things not changing such as on pensions, gives some people less room to complain.

In conclusion I think we also know two more things.  First, Philip Hammond does a good turn in dad jokes, but probably has the air of someone looking forward to a time out of the limelight.  And second it probably allows for the Prime Minister some breathing space to shuffle her pack now.  UK politics continues to be interesting, even if the economics (and presentation) can be a little dull.