Austerity 'coming to an end' but do the numbers add up?
UK Chancellor Philip Hammond has used the Budget to promise that the era of austerity is coming to an end. But do the numbers add up? The FT's economics commentator Martin Sandbu dissects the speech.
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The Chancellor of the Exchequer, the Right Honourable Philip Hammond.
All right, here we go.
The era of austerity is finally coming to an end.
He said it. The era of austerity is finally coming to an end. So, the chancellor has doubled down on the promise already made by the prime minister. Now we'll have to see if the numbers add up and do justice to that claim. The end of austerity, let's see.
We will also harvest a double-deal dividend. A boost from the end of uncertainty and a boost from releasing some of the fiscal headroom that I am holding in reserve at the moment. We are confident that we will secure a deal which delivers that dividend.
It's quite a clever, suddenly rhetorical device, for a number of reasons. It redeems, a bit, the language we heard earlier from some of the hardcore Brexiters about a Brexit dividend. We know there isn't a Brexit dividend. The economy will suffer from increasing the distance with the main trading partner in the EU. But the chancellor is right to say that if there is now a proper deal, given that there's a lot of uncertainty around that, that will make things better than they would be without a deal.
In that sense, he kind of redeems the language, and he can also say, it's really important that the whole party, the whole Tory party, plays along with what the prime minister and the chancellor want. So he says, if there is a deal, then of course they may not need to spend the money he set aside for preparations for a no-deal scenario. And in the economy, because uncertainty who will be reduced, you will probably see new investment, new hiring, and higher growth rate than what we currently expect. So, this is both clever and it's important, both politically and economically.
Borrowing this year will be £11.6bn lower than forecast at the spring statement.
The chancellor has been given some other good news from the Office of Budget Responsibility. They now forecast borrowing to be almost £12bn billion less this year that had been forecast as recently as the spring statement, about half a year ago. That's almost, just a little bit less than what my colleague Chris Giles predicted last week from the published numbers. Chris usually gets it right. But that's quite a lot of extra money for the chancellor to play with.
The OBR confirmed that our national debt peaked in 2016-17 at 85.2 per cent of GDP, and then falls in every year of the forecast.
Again, good news for the chancellor from the OBR. Debt peaked two years ago - the debt to GDP ratio - and it's falling, and it's going to be lower in each year than what was previously forecast. All of which is not really surprising or unexpected, but it plays in very nicely into the narrative of a Conservative government that's fiscally responsible. Of course, they've been in office for a long time. This is largely the cycle doing its work. But it does really work for the message they want to put across.
When our EU negotiations deliver a deal, as I'm confident they will, I expect that the deal dividend will allow us to provide further funding for the spending review. The hard work of the British people is paying off.
Here we see how it's all coming together economically and politically. So the chancellor has just said, this is great news to be able to give as chancellor that he will now start growing in real terms, the spending on public services, departmental spending. After, as we know, pretty much a decade of cuts. And he's also linking this to resolving, or finally deciding on the Brexit issue and agreeing a deal with the EU. That will allow even more money to be released for public services. The subtext here, of course, is to the rest of the party - don't scupper this. Don't stop it, because it's only through getting this deal that we will be able to also provide the sort of public services that voters like.
Austerity is coming to an end, but discipline will remain, and that is the clear dividing line in British politics today.
So the main message on which they are trying now to fight against the opposition is that austerity is coming to an end thanks to what the Conservatives have done. And this extra money that's coming, thanks to good news on the economy, he's using to the best effect he can. Some more money for quite a lot of different public services that have experienced strong cuts, but also something for traditional Conservative causes like defence.
And finally, a commitment not to increase taxes, little tweaks here and there, some cleaning up loopholes that are very welcome. But the chancellor is not accepting the advice of many independent analysts that, in the future, a solid provision of public services will require somewhat higher tax levels. Clearly not going down that route. So that is a pretty traditional Conservative message with a kind of compassionate conservatism added in, which he can do with the extra good news on the economy and the public finances. So there is clearly the end of an era of ever deeper cuts. Is it actually going to feel like the end of austerity to enough voters next time they go to the polls? That's still not quite clear.