5 things to watch for in the UK’s Brexit budget

The UK chancellor will push the message that there is an economic dividend on offer if MPs back a Brexit deal.

کد خبر: ۸۴۷۰۳۸

تاریخ: ۰۷ آبان ۱۳۹۷ - ۰۸:۳۲

LONDON — U.K. Chancellor Philip Hammond will use his annual budget to try to bolster support for the prime minister’s Brexit plan, a strategy that risks antagonizing Tory hard-liners as Brexit negotiations enter their final stages.

When Hammond presents his budget in the House of Commons on Monday afternoon, he will emphasize that his financial plan rests on securing a deal with Brussels ahead of the U.K.’s exit from the European Union in March 2019. Without a deal, his budget — and the public spending promises that go with it — will be replaced by an emergency rethink.

His calculation: MPs will be more inclined to back plans to start spending that he hopes will be popular with voters, than to risk the potential chaos of a messy divorce with Brussels.

“If we were to leave the European Union without any deal … then we would need to take a different approach to the future of Britain’s economy … and, frankly, we would need to have a different budget that set out a new strategy for the future,” Hammond told Sky News’ Sophy Ridge on Sunday.

With time running out to strike a deal, Theresa May’s government is preparing to present MPs with a choice, should she secure an agreement with the EU: Back its deal or leave the EU without one.

“Be in no doubt that I will maintain enough fiscal firepower to support our economy [in the event of no deal]” — U.K. Chancellor Philip Hammond

This year’s budget also represents a moment of danger for the government to navigate safely if Brexit talks are to get back on track. May’s Northern Irish backers, the Democratic Unionist Party, have threatened to torpedo the budget if they remain dissatisfied with the government’s Brexit negotiating stance on the Irish border, a move that at best would severely dent the prime minister’s authority and at worst topple her altogether.

Many on the Continent are watching closely for evidence May can clear this week’s budget and the ensuing vote in parliament relatively unscathed so that Brexit talks can resume.

With domestic political pressure building on Conservatives to end an eight-year run of public spending cuts that have caused real pain for British citizens, Hammond, the Cabinet’s most ardent advocate of maintaining close ties with the EU and a bogeyman for Brexiteers, has talked up the idea of a “deal dividend” — cash that’s only available if there is a Brexit deal.

Brexit supporters were quick to cast Hammond’s Treasury as fearmongers Sunday, with leading Euroskeptic MP Jacob Rees-Mogg telling Ridge the department is the “last bastion of Remainerism.”

But with every Tory MP looking over their shoulder at Jeremy Corbyn’s Labour Party and his plan for an explosion in public spending that is popular with austerity-weary voters, Hammond will want to use Monday’s budget as a means of persuading his own party that the best way to beat Corbyn, is to secure the country’s finances and start spending. However, that depends on striking and ratifying a Brexit deal.

Here are five things to look out for in the budget and its aftermath:

1. Brexit deal good for economy: The numbers

In his party conference speech earlier this month Hammond predicted a deal with the EU would trigger a “boost to our economic growth” and the same message may well be at the heart of his budget.

According to Amit Kara, head of U.K. macroeconomic forecasting at the National Institute for Economic and Social Research (NIESR), if there is a Brexit deal, Hammond could be able to borrow £16 billion more on average between 2019-20 and 2022-23 than previously projected, allowing him to spend on average £30 billion more during the same period — all while sticking to his strict borrowing targets.

But if there’s no Brexit deal, the economic slowdown would wipe this out almost entirely, Kara said. “There is fiscal room with a soft Brexit. With a hard Brexit, that fiscal room more or less vanishes,” he said.

According to NIESR forecasts, the difference that the Brexit outcome could make to Hammond’s calculations is stark: 1.9 percent GDP growth in 2019 if there’s a deal, versus 0.3 percent if there isn’t.

2. Windfall sweetens the ‘deal’

U.K. economic growth, while hardly skyrocketing, has held up better than many economists had predicted.

The Office for Budget Responsibility is likely to confirm, alongside Hammond’s budget, an overall improvement in the public finances since their last forecasts in March, thanks to better than-expected tax receipts. Combined with some departmental underspends, this should provide Hammond with a welcome windfall, which the Financial Times has reported could be as much as £13 billion.

British Chancellor Philip Hammond leaves from 11 Downing Street in London | Daniel Leal-Olivas/AFP via Getty Images

“Historically chancellors have used these windfalls to spend them rather than bank them,” said Ben Zaranko, research economist at the Institute for Fiscal Studies. “You might find he spends the money on social care, or the prisons system, or schools.”

Certainly, the list of public spending areas that would welcome a boost is lengthy. At the very least, the windfall should enable Hammond to fulfil most of May’s promise, earlier this year, of an extra £20 billion for the National Health Service by 2023.

Several Tory MPs are also demanding an extra £2 billion be pumped into the social security system to ease the pain of the government’s “universal credit” welfare reforms.

The chancellor may feel inclined to dish out spending in this or other prominent areas as a sweetener to show Tories what can be achieved but on the understanding that he can only loosen the purse strings further if there is a Brexit deal.

3. We’re ready for ‘no deal’

“Hammond has one task only in next week’s budget,” said the headline of an article by influential ConservativeHome blog Editor Paul Goodman. “To show the government is preparing for no deal.”

That’s how many Brexiteers like Goodman see it. While Hammond’s goal will be to talk up economic (and political) benefits of getting a deal, he would be wise to pay more than lip service to Brexiteers’ wish to see government planning seriously for no deal. For a good bargain to be found, Brexiteers believe, the EU has to know the U.K. is sincerely prepared to take the cut and run option.

Preparations have gathered pace in recent weeks, right down to practical measures such as altering a motorway for use as a lorry park in the event of delays at the port of Dover. Cabinet is now receiving weekly updates on no-deal plans from Brexit Secretary Dominic Raab.

British Brexit Secretary Dominic Raab | Christopher Furlong/Getty Images

“Be in no doubt that I will maintain enough fiscal firepower to support our economy [in the event of no deal],” Hammond said in his party conference speech. Brexiteers will want to see a concrete plan.

4. How it goes down

The budget itself will be followed by three days of debate in the Commons culminating in a vote on Thursday.

The DUP is determined to force May to stick to her promises not to sign Northern Ireland up to any EU rules the rest of the U.K. is not subjected to during negotiations with Brussels and several media reports have suggested the party has threatened to vote against the budget in order to strengthen its hand on Brexit. Such a move could prove fatal for May’s authority.

“The government are well aware of what our red line is, has been, and will continue to be. They’ve been well aware of that for some time and we don’t expect the government to change position from where they’ve been,” a party spokesman said when asked earlier this month whether the DUP is prepared to vote against the budget.

Traditionally, a U.K. government losing a budget vote has been considered a confidence issue, leading to the dissolution of parliament and a general election. Now, under the Fixed Terms Parliament Act of 2011, a vote against a budget does not automatically become a confidence vote but would nevertheless trigger enormous political pressure on May to call an election.

The danger, however, of Brexiteer Tory MPs voting against the budget appears to have subsided. MPs held their fire at a meeting with the prime minister last week, and remain determined to change the Brexit policy, not the prime minister — perhaps conscious that no viable alternative candidate has emerged.

Britain’s Prime Minister Theresa May | Christof Stache/AFP via Getty Images

One senior Brexiteer MP whose opinion is influential on the back benches said on condition of anonymity: “I don’t think any Tories are planning to vote against the budget.” A second senior Brexiteer MP agreed.

5. End to austerity (if all goes well …)

Beyond short-term spending boosts made possible by an unexpected windfall in the public finances, there is the small matter of ending austerity, something both main parties appear to agree will be central to Britain’s next political battle post-Brexit.

That was the headline proclamation of May’s party conference speech. Unfortunately for the chancellor, uncertainty surrounding Brexit makes it hard for him to make any major decisions about how, in the long term, a major, sustained rise in public spending can be financed.

The windfall is useful now, but not anything like the kind of cash required for a systemic shift away from austerity, said Zaranko.

“It might be enough to tide him over and allow him to say that because of the uncertainty around the future EU trading relationship, he’s not able to set multiyear plans, to kick that into the grass this year and set just one year of spending plans,” he said.

A comprehensive spending review is scheduled for next year, at which the government’s fiscal direction till the end of this parliament must be set. Speculation has been rife that to pay for the end of austerity, taxes will have to be increased to pay for the long-term reform needed in many areas, in particular the U.K.’s crisis-hit elderly care system.

But don’t expect the chancellor to tackle any of those big questions in this budget — there’s Brexit to work out first.