Philip Hammond promised a “boring” budget and he was as good as his word. It was quite an achievement to string his speech out for almost an hour because there was precious little in it that hadn’t been pre-announced.
Most of the time, Hammond rehashed spending commitments and tax changes from previous budgets and autumn statements or said the government would be taking a close look at pressing issues such as the future of social care. Truly, this was a chancellor who hit the ground reviewing.
The caution was deliberate. There will be two budgets in 2017 and the one at the end of the year is being billed as the main event.
That makes sense. Hammond faced neither political nor economic pressure to turn the last spring budget into a major giveaway, although the extra money for social care and the sweeteners to smooth the business rates reform mean he will pump almost £2bn into the economy next year. Instead, there was a focus on structural reforms to tackle two long-standing weaknesses: productivity and technical education.
Given the government’s commanding lead in the opinion polls, only pronounced weakness in the economy would have forced Hammond to provide a major fiscal boost through tax cuts and spending increases.
But growth has surprised on the upside since the EU referendum last June, with the result that the Office for Budget Responsibility has revised up its forecast for 2017 from 1.4% to 2%.
However, the OBR has not changed its view that Brexit will eventually lead to weaker economic performance, with the higher growth this year essentially borrowed from the future.
Similarly, the big improvement in borrowing for the current 2016-17 financial year is seen as a one-off caused by special factors rather than a fundamental improvement. Borrowing for the early years of the next parliament – when austerity will be into its second decade – is seen as little changed from the projections made in the autumn statement.
Brexit was not mentioned in the speech although it was the 1,000lb gorilla in the room. Hammond has no idea how the economy will be affected by the two-year article 50 negotiations but is less gung-ho about the outcome than some of his colleagues. He has kept his powder dry in case the economy takes a bigger growth hit than the OBR expects.
