A Budget with an asterisk

Chancellor Philip Hammond promises rainbows and unicorns in this year’s Budget, but only if the UK leaves the EU with a deal.

It’s that day of the year again when the Chancellor proudly shows a red briefcase to the press.

I wonder if the briefcase has any contents because the government’s budget plans are leaked to the public before the Chancellor has had a chance to unveil them.

Her Majesty’s Treasury makes two statements to Parliament every year. The Spring Statement, called the “mini-budget”, and the Autumn Budget.

Normally the Autumn Budget is the big one. But with the government in the final stages of negotiating its way out of the EU, this year hardly counts as normal.

It’s why the 2018 Budget comes with an asterisk.

Philip Hammond, the man attached to the red briefcase, says he’ll cut taxes… if the UK gets a good Brexit deal.

He’ll spend more on public services… if a deal with the EU gets done on reasonable terms.

And he promises to end austerity… if trade continues unobstructed between the UK and the EU.

If, however, the UK leaves the EU without a deal in place, all those promises presumably go out the window.

Lots of uncertainties. One thing that is certain is the government’s using the Budget as a means to its political ends.

The Autumn Budget*

The government recently launched a charm offensive to win support for its Brexit plans.

Prime Minister Theresa May knows she’ll have a hard time dragging her deal with the EU through Parliament so she’s courting people left, right and centre.

May already promised to increase public spending and end austerity at this year’s Conservative party conference. She also vowed to “back business” in an attempt to repair her government’s relations with Corporate Britain.

Now she’s enlisted the help of her Chancellor to win support for her government’s plans.

There’s something for everyone in this year’s Autumn Budget.

The political right will like that it includes cuts to income tax. The personal allowance will go up to £12,500 while the threshold for the higher 40% rate will be raised to £50,000.

The political left, on the other hand, will be happy the government’s plans to spend an additional £25bn on the NHS by 2023 with mental health spending increased by £2bn.

But wait, there’s more.

The government wants to spend a considerable amount on infrastructure, research and development and digital manufacturing, and there’s more money going to defence and welfare policies.

And if that wasn’t enough, Hammond assures us that an agreement with Brussels over the UK’s exit terms will lead to a “deal dividend”.

This deal dividend will give the Treasury even more money to play with, Hammond claims. It’ll lead to rosier growth forecasts while the £15bn set aside to save the economy in a no deal scenario could be used for something else as well.

A deal with Brussels would likely keep the UK in the EU’s customs union and maybe even the single market for the time being.

But isn’t that worth it if it brings us all these wonderful things? – the government asks.

After years of austerity, the Budget sounds very good indeed. The economy seems to be in pretty good shape if Hammond can afford everything he sets out to do.

But now we’ve arrived at the asterisk…

This Budget isn’t final. It all depends on the government reaching an agreement with the EU and MPs approving that deal in Parliament.

Should the unthinkable happen, shudders the Remain-supporting, soft Brexit-loving Chancellor, then it’s a whole new ball game.

A politicised Budget

The red briefcase contains and unexpected £13bn thanks to higher-than-expected tax receipts.

That money will most likely be spent on the government’s top priorities, like May’s promise to spend more on the NHS.

In most other cases, investments are on hold until there’s more clarity on the nature of the UK’s divorce from the EU.

As someone who thinks there’s too much at stake for both sides not to find agreement in time, I reckon most of Hammond’s promises will still stand after Brexit.

But it is a tricky situation.

Hammond has now basically earmarked his available funds for two different things. Tax cuts and spending if a deal with the EU is achieved and something else that isn’t tax cuts or spending in the absence of a deal.

As Hammond told Sky News:

“Our approach is based on a deal being done with the EU on reasonable terms.

“If we don’t get a deal, we would need to take a different approach to the future of Britain’s economy. We would need to look at a different strategy and frankly we’d need to have a new Budget that set out a different strategy for the future.”

To sum up: the government has thought up an excellent Budget but everything is subject to change.

So what’s the point of this Budget? Couldn’t Hammond have postponed his plans until we do know what’s going to happen with Brexit?

No, because in that case the government wouldn’t have been able to use the Budget to achieve its political goal.

That political goal is to push Theresa May’s Brexit deal with Brussels through Parliament before the March 2019 deadline.

The government is promising us rainbows and unicorns. But, it warns, rainbows and unicorns are expensive. If you don’t support our Brexit plans, we may not be able to afford them.

That message is directed at both Parliament and the public.

The government wants MPs to know that it’ll take away all those wonderful things like tax cuts and public spending if they block its Brexit deal with Brussels.

At the same time, it wants the public to get behind May’s Brexit (or at least not complain too much about it). There are no second referendums in rainbow and unicorn land.

With Hammond claiming a no deal Brexit would warrant a new Budget, this year’s Autumn Statement is not much more than a propaganda tool to win support for May’s Brexit.

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