Philip Hammond is set to land a £13bn annual windfall in the Budget from better-than-expected public finances that will help save the chancellor from increasing taxes to pay for NHS spending.
The good news for Mr Hammond will be handed to him by the independent Office for Budget Responsibility, which had underestimated the recent strength of tax receipts — in the largest annual change in borrowing forecasts since the data was first produced in 1982-83.
The chancellor and his aides have been worrying in recent weeks about a cumulative £100bn bill over five years for the NHS and social housing improvements. But much of this gap is likely to be filled by the OBR slashing its borrowing forecasts until 2022.
The revisions are expected to cut the deficit by about £13bn for the 2018-19 financial year. Before policy changes, public borrowing was set to be around £25bn this year, the lowest this century.
The OBR’s reprieve for Mr Hammond should allow him to avoid presenting a Budget that will infuriate his fellow Conservative MPs and give him more time to hold out for a potential “deal dividend” from the Brexit negotiations.
The fiscal watchdog said the improved forecasts followed official data showing stronger personal tax receipts and corporation tax revenues this year — something the Office for National Statistics had not yet taken into account. It admitted it tended to “over-predict deficits” and has pledged to rectify the problem in its Budget forecasts next Monday.
The OBR, which blamed the ONS for underestimating the size of the economy, signalled the improved forecasts would lower the deficit in the next five years. But while the updated forecasts would finance NHS commitments almost until the end of parliament in 2021-22, they would not cover the government’s commitment to end austerity in the next decade.
The Budget is being held against a forbidding political backdrop, with some Tory Eurosceptic MPs threatening to vote against it in protest against the government’s Brexit policy.
The Democratic Unionist party, which props up Theresa May’s government, has threatened similar action if Northern Ireland’s place is not protected. Mr Hammond, seen by Eurosceptics as an architect of “Project Fear”, is vulnerable to rebellion.
Any tax changes are likely to run into Tory opposition, with one senior MP saying cutting pension tax relief or the tax perks enjoyed by the self-employed would be resisted. “There’s no way he could get them through,” the MP said.
Instead the chancellor is expected to make any big tax moves next year, by which point he hopes that Brexit angst will have subsided and the economy could be benefiting from its “deal dividend” — if Mrs May lands an exit deal based on her Chequers plan.
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