Officials at the Treasury must have been delighted yesterday when the EY Item Club suggested the Chancellor will present his Budget in a fortnight against a backdrop of lower borrowing and strong growth.
That delight will probably be for two reasons. First, because the Item Club’s pronouncement is the latest in a series of economic ‘good news’ stories that has shown the British economy to be far more robust than many expected following the EU referendum last year. The concerns of various financial heavyweights (and Philip Hammond’s predecessor) that the UK was on an economic precipice, to be followed by years of toil and strife after the inevitable financial Armageddon, are yet to materialise.
Instead, the UK has posted higher growth rates than other countries in the G7, allowing the Chancellor to stand at the despatch box on 8 March to report the rude health of the economy, underpinning Conservative economic credentials and denying a fractured Labour Party the opportunity to win such much needed points.
One can imagine how George Osborne might set out his speech given the opportunity. But doubtless it’ll be a more reserved performance from Philip Hammond.
The second reason Treasury officials will be happy to hear the Item Club’s pronouncement is because it makes the Budget a bit easier. In reality, that means Mission Very Difficult instead of Mission Impossible.
The reason is the problems are starting to mount up for the Chancellor – indeed the Government as a whole. Last week the Joseph Roundtree Foundation concluded that 19 million people earned less than the minimum income standard. Yesterday, we learned NHS trusts have overspent by more than £900 million. Social care is continually crying out for more funding to cope with a growing and ageing population. And businesses are warning of the risks of increases to business rates.
So, the Chancellor will likely be thrilled to hear he’s a slightly freer hand given the number of plates he has to keep spinning.
The EY Item Club has concluded public borrowing decreased on account of higher tax receipts generated by increases in employment – in turn meaning Mr Hammond is not faced with the unenviable choice between raising taxes or cutting spending to plug a hole in the public finances. By eschewing his predecessor’s budget deficit targets, Mr Hammond has given himself further leeway, so at least if he does have to find new money it can be directed to the likes of social care or the NHS.
This of course is still all predicated on the economy remaining strong and robust as we enter the process of formal Brexit negotiations. Some businesses will have made their decisions early. Others will be waiting – and indeed may have to wait a little longer – to understand the full implications of whatever deal the Prime Minister can negotiate. As that becomes clear we may not see the doomsday forecasts that were predicted in some quarters last year, but we could see the economy slow.
And if that happens, Mr Hammond’s job – certainly by 2019 – would be a lot more difficult.