Britain braces for first budget since Brexit vote
Britain today delivers its first budget since the Brexit referendum, with economists expecting a slight shift away from years of austerity as the nation readies its EU exit strategy.
The Conservative government’s finance minister Philip Hammond will deliver his so-called Autumn Statement before parliament around 1230 GMT today-exactly five months after the Brexit vote. “We need to be match fit for the opportunities and challenges” arising from Brexit, Hammond declared on Sunday, while warning that Britain still faced an “eye-watering” deficit. Prime Minister Theresa May has vowed to trigger Britain’s exit from the European Union by the end of March, after disaffected British voters sent shockwaves across the world in the June 23 referendum by choosing to leave the bloc.
Some economists argue that Donald Trump’s shock election as US president could similarly persuade May’s administration to do more to help workers who have felt shunned by government policies. “May has made it clear that she wants to prioritise helping those households who are struggling to get by and who feel left behind by the economy’s recovery since the 2008/9 slump,” said IHS Markit economist Howard Archer. “June’s Brexit vote and Donald Trump’s win in the US presidential election has highlighted the need for governments to tackle income inequality.”
The British economy has proven surprisingly resilient since the referendum but experts believe that Britain’s planned departure from the EU could still spark economic chaos. That in turn could limit the amount of planned austerity reduction in Hammond’s budget speech.
“Given the number of unknowns surrounding Brexit, Hammond will have a tough job,” noted City Index analyst Fiona Cincotta. “We can expect the Autumn Statement to be a glimpse of what we can expect once the divorce proceedings with the European Union begin next year.” She added: “We are expecting to see an end to the years of austerity with the focus shifting back to spending.” Societe Generale analyst Kit Juckes cautioned however that “public finances are not in good shape and Mr Hammond has no appetite for a major increase in borrowing”.
Robotics and roads
Over the weekend, May announced fresh investment in research and development, revealing that Hammond would hike its spending by £2 billion ($2.5 billion, 2.3 billion euros) annually until 2020. Investments will be rolled out through a new fund which will prioritize technologies including robotics, industrial biotechnology and medical technology. The Treasury hinted also at a loosening of Britain’s fiscal straightjacket, introduced by former finance minister George Osborne who resigned following the referendum result.
Under previous prime minister David Cameron, Osborne oversaw an austerity program of spending cuts and tax rises. Hammond will promise to place “investment in infrastructure... at the heart” of the budget, according to a Treasury statement. “He will set out how the government will fire up the nation’s economic infrastructure-all part of plans which form the backbone of ongoing work to close the UK’s productivity gap,” it added. Osborne’s austerity policies were aimed at eliminating the budget deficit following the global financial crisis. But Hammond has scrapped this objective of producing a budget surplus by 2020.
“Hammond will set out a new fiscal framework, outlining the need for flexibility to allow government to respond to changing economic conditions,” the Treasury statement said. The plans will also include £1.3 billion of new investment in Britain’s roads to tackle congestion. As well as tax-and-spend plans, the budget will include the Conservative government’s latest forecasts for economic growth. The Autumn Statement is seen as a mini-budget before the main tax-and-spend announcements given usually in March.