It’s Budget day! The Chancellor has a number of big challenges to tackle in his first formal outing – from social care to business rates to school funding formulas, there are plenty of calls for him to find more money. But the overriding challenge still remains, bringing the deficit down to a manageable level, and ultimately delivering a surplus. Mr Hammond needs to keep his eyes on that goal.
Over the past weeks the newspapers have been full of headlines that the OBR will hand the Chancellor a nice little bonus in the form of a £9-12bn cheque for this financial year, undershooting his borrowing target and providing wiggle room to address some of those big issues. Added to this, forecasters expect revised growth figures could give him up to £60bn more over the course of this parliament than he was told just 5 months ago at the Autumn Statement. A week may be a long time in politics, but it seems the passing of a few months is economic memory loss for some – that £12bn “bonanza” is in fact just a revision back to the borrowing levels projected at the time of George Osborne’s last budget back in March 2016, which will still see the UK borrowing £55bn this year alone.
So what’s changed? That undershoot is partly a result of higher economic growth than expected following the Brexit vote, which has continued to exceed expectations, and builds in structural gains in tax revenue. That growth has fed through to near record tax revenues in January when self-employment and corporation taxes both hit recent highs – which goes someway to support the argument that current the tax rate actually raises more revenue for the Treasury.
But As the Chancellor rightly said on his tour of the Sunday morning studios, although he expects the OBR to extend his credit, he is right not to blow the lot. After all, the government put in place rules for others to ensure financial bonuses are linked to real performance and can always be clawed back if that performance is later proven to be a flash in the pan.
As I’ve argued ahead of previous Budget’s, in the interest of current and future generations the Chancellor must continue the laser focus on cutting the deficit. Let’s just remember that eight years after the financial crash, as a nation we have borrowed £1,700 over the last year for every person in the UK in work. The last time the public finances were in surplus was in 2001, in the last year of Ken Clarke’s financial plans that were carried over into the early years of New Labour.
With the Budget set to reveal that National Debt (PSND) has hit a record £2 trillion, and new money already committed at the Autumn Statement to boosting spending on green energy, transport connections, and new homes, the Chancellor has his work cut out. But with employment remaining at record highs and tax revenues holding up remarkably strongly, now is the time to redouble deficit reduction efforts and not open the tap on reckless public spending commitments. However challenging, as someone once said, it is time to fix the roof while the sun is shining.