Will May be brought down by the Bud­get?

The New European - - Agenda -

This has not been a week short on the­atrics for the UK govern­ment, whether in the Com­mons cham­ber or EU ne­go­ti­at­ing rooms. But de­spite all this pub­lic drama, there is – if the govern­ment lasts long enough – a still big­ger chal­lenge ahead for the govern­ment, land­ing much sooner than the crunch Brexit Day: they need to pass a Bud­get.

‘Spread­sheet’ Phil Hammond, the un­flashy chan­cel­lor of the ex­che­quer, has to present the UK govern­ment’s Bud­get for the next year on Oc­to­ber 29 – less than a fort­night from now. This is then fol­lowed by five days of par­lia­men­tary de­bate on the pro­pos­als therein, and a crit­i­cal vote on whether par­lia­ment will give the Bud­get its ap­proval.

While this is no longer a ‘con­fi­dence’ vote that would bring down the govern­ment – thanks to the Fixed Term Par­lia­ment Act – it is all but in­con­ceiv­able that a prime min­is­ter could re­main in of­fice after fail­ing to pass this crit­i­cal vote on the govern­ment’s poli­cies for the year ahead.

The omens for the chan­cel­lor, though, could hardly be worse: if Theresa May’s govern­ment has been char­ac­terised by kick­ing prob­lems down the road – es­pe­cially on Brexit – they have done it per­haps even more so on this year’s Bud­get.

Bud­get days are al­ways tricky things: given the need to sort out tax­a­tion to cover most new spend­ing – or else blow up govern­ment debt – it’s al­ways some­thing of a con­jur­ing trick, try­ing to make sure there’s enough sur­prise ‘good’ news to mask the in­evitable rev­enuerais­ing tricks therein.

The prob­lem for Hammond is there has been an aw­ful lot of ‘good’ news promised in ad­vance. The govern­ment has promised the ‘end of aus­ter­ity’, an even­tual in­crease of £20 bil­lion in NHS spend­ing, and has com­mit­ted to in­creas­ing de­fence and aid spend­ing. That’s a lot of good head­lines al­ready wasted – and a lot of things to find a way to pay for.

That’s just the eco­nomic prob­lem: Hammond has a po­lit­i­cal headache, too. As it stands, the DUP – who prop up Theresa May’s mi­nor­ity govern­ment – have said they will refuse to vote for the Bud­get if they are un­happy about the govern­ment’s Brexit plans.

Buy­ing them off the first time cost around £1 bil­lion in ex­tra spend­ing. This time, given how fu­ri­ous they are over Brexit, and how much lever­age they know they have over May, it could be even harder (if that is even pos­si­ble). So far, so bad. But this week the wide­lyre­spected In­sti­tute for Fis­cal Stud­ies set out its ‘Green Book’ pre­view of this year’s Bud­get, and it lays bare the size of the rab­bit Bri­tain’s greyest ma­gi­cian will have to pull from his hat.

The first prob­lem the IFS draw our at­ten­tion to is that de­spite pledges to end aus­ter­ity, there are cur­rently £4 bil­lion in de­part­men­tal spend­ing cuts planned for next year – which Hammond has to ei­ther fol­low through on, risk­ing the

‘end of aus­ter­ity’ pledge, or can­cel, leav­ing him with £4 bil­lion ex­tra debt, or funds to raise.

The next is the bill for the promised in­creases to NHS, de­fence and aid spend­ing, which by 2022-23 – the fi­nal year of fore­casts cov­ered by the up­com­ing bud­get – will cost £13 bil­lion a year. Given the govern­ment is cur­rently promis­ing spend­ing will be £2 bil­lion lower than it is now, he has be­tween a

£15 bil­lion and £19 bil­lion black hole in his fi­nances, be­fore a sin­gle give­away.

That means Hammond ei­ther needs to u-turn on eight years of Con­ser­va­tive rhetoric – that the deficit, and cut­ting it, mat­ters – or else raise bil­lions in new rev­enue, with­out the op­tion of more cuts (ie more aus­ter­ity).

That leaves him re­ally only one op­tion: rais­ing taxes – a tricky propo­si­tion for any Con­ser­va­tive chan­cel­lor, let alone one oper­at­ing in a frac­tious mi­nor­ity govern­ment. As an idea of the scale of a £19 bil­lion tax hike, the IFS notes it would be equal to adding 1% to in­come tax, Na­tional In­sur­ance and VAT. Imag­ine the head­lines if he tried that.

All of th­ese are be­fore, re­mem­ber, Hammond tries to of­fer a sin­gle pos­i­tive new pol­icy, or any kind of give­away – such as a freeze on beer duty, or sim­i­lar.

Most im­por­tantly, all of th­ese headaches don’t even be­gin to fac­tor in the po­ten­tial im­pact on pub­lic fi­nances of a hard Brexit, or even more dis­as­trously, a no-deal. Even with­out fac­tor­ing in Brexit, the chan­cel­lor has been set an in­sur­mount­ably dif­fi­cult task – with it, his mis­sion is all but im­pos­si­ble.

We might be fo­cused in on the pos­si­bly staged – or at least over-hyped – ruc­tions be­tween Theresa May and the EU, and May and her back­benchers. The real drama, and the real dam­age, could ar­rive far closer to home.

Such is the dan­ger of be­ing in of­fice but not in power: May’s govern­ment can’t get any­thing done, and has to over­promise just to stag­ger through the day-to-day. While Brexit will be the ul­ti­mate reck­on­ing of that, May has man­aged to de­lay and dodge show­downs, and can prob­a­bly do that for an­other month or two more.

Not so with the Bud­get: it’s com­ing, on Oc­to­ber 29. Can the govern­ment make it through?

Im­ages Photo: Getty

HEADACHES: Chan­cel­lor Philip Hammond faces a tricky bud­get

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