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by GK Strategy 9th March, 2018
3 min read

What to expect in the stripped-back Spring Statement

Tuesday 13th March will see the first ever stripped-back, concise, “Spring Statement”, from Chancellor Philip Hammond. We are promised a speech of just 15 mins, rather than the normal hour, and – shock, horror – not a single announcement of new tax changes or spending. Instead, we are led to expect updated economic forecasts and a stack of worthy consultation papers about possible future policy changes. There could be the odd reference to Brexit, but I would expect Mrs. May to keep these short and uncontroversial – she will not want her remain-orientated Chancellor upsetting her more eurosceptic backbenchers at this sensitive time!

Of course, we’ve heard all this before to some extent, on short statements and lots of worthy consultations. It was Gordon Brown who introduced the consultative “Pre-Budget Report”, which was supposed to be a serious attempt to consult in detail on major changes in tax and other policies. But, under Mr. Brown, this consultative exercise soon became just another “mini-Budget”, and before we knew it we pretty much had two Budgets every year – something which few, if any, other developed countries have embraced.

Will Philip Hammond’s worthy attempt to consult more and tinker less soon go the way of Mr. Brown’s over-energetic activism? Well, perhaps not. After all, Mr. Brown was a highly activist Chancellor, who believed in the power of the state to effect useful change. Mr. Brown was also (eventually) a big spender who enjoyed having a high political profile. Mr. Hammond seems to share none of these characteristics. So expect the trimmed back Budget to last under Mr. Hammond – what is less clear is how much he will use his Spring Statement to consult on future changes to tax and spending. Consultation sounds like a good thing, but there are reasons why Chancellors have preferred producing rabbits from hats, rather than setting a lot of hares running. In an environment in which the fiscal choices are still highly constrained, consulting on potentially unpopular policies can simply give opponents more time to mobilise objections. It takes a highly skilled politician to manage consultations in a way that doesn’t entrench opposition to necessary changes or discard opportunities to unleash populist, vote-winning, fireworks.

What else can we expect, though, in this first Spring Statement? Well, the Chancellor will unveil the latest set of economic forecasts from the Office for Budget Responsibility and from HM Treasury.

Last year’s revised forecasts were pretty awful, as productivity growth was revised downwards, and public borrowing upwards. Since then, the immediate public borrowing out-turns have been marginally better than expected and there have been some glimmers of light on the productivity front – so it seems unlikely that the Chancellor will need to unveil yet more red ink. Indeed, Hammond is likely to join David Cameron and George Osborne in claiming credit for the impending disappearance of the “current” budget deficit – the gap between tax receipts and non investment spending.

What will be interesting will be what signposts there are in the Spring Statement about some of the big policy challenges currently facing the government. With NHS service standards declining rapidly, will the Chancellor establish any longer term reviews to seek to put health spending on a more realistic trajectory? And will there be any further tax or other economic incentives put in place to stimulate more house building, which seems to be emerging (rightly) as a policy priority of the government?

Crucially, will the Chancellor have the political courage to seek to identify new revenue sources to give resilience to the public finances? While the deficit has been steadily reduced since the 2009 peak, the forthcoming ageing of the UK population is expected to impact very unfavourably on the public finances – cutting tax revenues as a share of GDP, while raising public spending on expensive line items such as pensions and health care. A prudent Chancellor would be looking ahead to consider how such fiscal challenges could be met. Whether a government that is grappling with all the complexities of Brexit has the bandwidth and strength to take on such long term challenges will be a key test of Mr. Hammond and his first Spring Statement.

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