It is fair to say that Philip Hammond has not emulated the theatrical tendencies of some of his forebears when it comes to Budget statements.
George Osborne, his predecessor, followed in the footsteps of Gordon Brown, building up anticipation levels weeks before the event, and always finding some sort of rabbit to pull out of his hat with a flourish on the day
Perhaps it reflects his low-key demeanour. Or perhaps Hammond is simply trying to avoid the shambles of his last Budget, when he was forced into a rapid U-turn on tax increases for the self-employed. So we can expect this to be a Budget of tweaks and fiddles, not large-scale vision or reform.
Economic reality is another constraint. The Office for Budget Responsibility (OBR) is expected to slash its forecasts for the UK’s long-term productivity and growth outlook. This may sound esoteric, but it really matters: on the OBR’s reckoning, a one per cent downgrade to GDP could raise government borrowing by 0.7 per cent after two years.
As a result, the £26bn “war chest” Hammond had hoped to put aside to cope with Brexit-related disruptions could dwindle to as little as £9bn. This is a tiny margin to play with, with total tax revenues and public spending commitments amounting to hundreds of billions of pounds each year.
But what if the chancellor were bolder? What could he do and what might it achieve?
An emboldened Hammond would announce a concerted programme of public infrastructure investment.
He could approve major projects such as Crossrail 2, channel funding to reducing long train and car travel times outside the south east, and inject cash into a meaningful housebuilding programme. Public infrastructure investment not only provides a short-term lift to demand; it also helps economies grow faster in the long term without hitting capacity constraints.
The UK has over five million small businesses, employing 16m workers. More funding for local training initiatives, helping these businesses to improve workforce skills, be more efficient, and move into export markets, would be welcome.
Many modern companies are heavily reliant on the internet – indeed it may form the basis of their business model – but broadband coverage is simply not good enough across large parts of the country. Improvements in these areas may not be as eye catching as grand new infrastructure projects, but can be just as useful to the economy.
These initiatives could be funded by additional borrowing. This would certainly be controversial, with Brexit just around the corner and when the upfront costs of infrastructure tending to be significant. But our bold chancellor would point out that borrowing costs remain low and the UK has clear infrastructure needs.
A very bold Hammond would take housebuilding and infrastructure spending out of his budgetary rules altogether, arguing that they are too important to be left inside a self-imposed fiscal straitjacket. Studies show that, when done properly, the boost to future generations’ incomes from increasing infrastructure investment means that such projects can ultimately pay for themselves.
Alternatively, Hammond could aim to raise the revenues from increasing taxes on high earners. This would allow him to sell the measures as focused on improving the lives of the “just about managing”. The additional revenues would help establish the economy’s footing for a world after Brexit.
Today could have been a golden opportunity to take a distinct, long-term view of the UK’s prospects, tackling the country’s productivity performance head on. An expanding economy would underpin confidence, spending and tax revenues, ultimately benefitting the public finances.
Unfortunately, Hammond lacks the political capital to take such a dynamic approach, and his cautious nature means he has probably barely considered it. In the process, he has missed the opportunity turn an evolutionary Budget into a revolutionary one.