Philip Hammond is what could be called a lucky chancellor, in the same way Napoleon had lucky generals. Most chancellors (finance ministers) inherit a mess: think of George Osborne in 2010 when he opened his desk drawer to find a note informing him there was “no money”. In 1979, Geoffrey Howe inherited inflation of over 20 per cent and an economy mired in the “winter of discontent”, John Major had to sort out the Lawson Boom and Alistair Darling arrived in Number 11 Downing Street a month before the run on Northern Rock in 2007, followed by the Lehman crisis a year later.
Back in June, Mr Hammond must have feared the worst too. He was propelled into the breach by Theresa May after the Brexit vote with Mr Osborne’s apocalyptic warnings still ringing in his ears. If Britain voted out, warned George, there would have to be an “emergency budget” to fill the £30 billion (Dh134.56bn) hole which would open up in the national accounts, half of it paid for through swinging extra taxes, including penal top rates of income tax and increases in everything else from VAT to “sin taxes” (beer, cigarettes, petrol and so on).
The other £15bn would come from savage cuts to government spending, with even the ring-fenced National Health Service no longer sacrosanct. Talk about austerity – this was wartime stuff.
If it had been true, Britain would today not only be in deep recession but probably on the point of revolution. Thankfully, of course, it was just scare tactics and an absurd exaggeration that cost Mr Osborne his job and reputation. He will still be remembered for his “emergency budget” when his obituaries come to be written many years from now.
Nine months post-Brexit, Mr Hammond presents his first budget today with not an emergency in sight. It is also his last – the ritual of the spring budget is to be ditched and replaced by a more detailed autumn statement. He will be able to talk about an economy that has recorded such unexpected growth in the past two quarters that he is better off by £12bn more than he reckoned even in November. The manufacturing industry had a cracking last quarter even before the weaker pound kicked in.
Mr Hammond is today expected to raise his growth forecast for this year to 2 per cent from 1.4 per cent, compared with the minus quantity Mr Osborne was predicting.
The budget deficit has come down, although not by enough, and Mr Hammond will even have a few pounds to spend on some of the more pressing issues for the government, such as the serious state of health care and the penal local authority rates that businesses are paying, particularly in London. He has even, in advance of the budget, announced grants for research and development, particularly in the IT sector, where Britain is becoming a major world player. After Brexit, it will need every world player it can get. There is also another £320 million for grammar schools, Mrs May’s pet project.
There will be a few tax increases, but modest ones: the self-employed will have to pay more national insurance, which is really just another form of income tax, and smokers, drivers and drinkers will have to pay more for their sins.
Mr Hammond is fortunate to have arrived at a time when the world has entered something approaching an economic boom, at least by the standards we have become used to in the past couple of decades when we thought we would never see an economic boom again.
Neither Barack Obama nor Donald Trump fully recognised it at the time, but back in the autumn the American economy suddenly started motoring and the latest batch of figures published in the first week of this month show just about every sector of the economy on the march. The surge in share prices to new all-time highs and the first signs of unfilled vacancies mean that an increase in interest rates this month is now a sure thing, with perhaps another two increases this year.
Nearer to home, the sleepy European economy has finally stirred itself and the latest figures show both Germany and France now growing faster than Britain, which has led the EU growth rates for the past four years. China this week revised its forecast down to 6.5 per cent but that’s scarcely a disaster.
Mr Hammond is a lugubrious kind of fellow and over the weekend showed no signs of jumping for joy at his good fortune. “If someone gives you a bit more headroom on your credit card,” he cautioned, “it doesn’t mean you have to rush out and spend it all at once.”
Instead, he reckons you should save it for a rainy day – which means the hard two years of Brexit negotiations that lie ahead, when he will need his war chest now approaching £50bn. We’ll have to see if his luck holds.
Ivan Fallon is a former business editor of The Sunday Times and the author of Black Horse Ride: The Inside Story of Lloyds and the Financial Crisis.
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