Spare a thought, if you will, for Philip Hammond. The Chancellor was out doing the broadcast round, taking questions on Brexit and the departure of Anna Soubry, Heidi Allen and Dr Sarah Wollaston to the new Independent Group of MPs. How he must have wished to have been talking about the UK’s budget surplus and what it means for the economy.
Little over a fortnight before his Spring Statement, the Chancellor has been handed what, on the surface, should be the best of good news. The UK posted a record budget surplus in January of £14.9 billion – the highest since records began in 1993, according the Office of National Statistics.
While economists will note revenue usually exceeds spending in January given a rush to beat the deadline for tax self-assessments, the scale of the surplus is startling. The news is significant for a number of reasons. Perhaps most importantly, it gives – on paper at least – the Chancellor more money to play with and allocate to government departments ahead of a Comprehensive Spending Review later in the year. This gives Mr Hammond the opportunity to deliver on the Prime Minister’s commitment, made at the Conservative Party conference last year, that the age of austerity is over.
The surplus also serves as a vindication of measures announced by the Chancellor in the Autumn Budget, including those for discretionary taxation – such as the freezing of duty on fuel, beer and spirits. And with annual borrowing now at the lowest levels since 2002, the figures should – again in principle – support a Conservative Party narrative about its economic credentials.
But the news isn’t all good, and it would be a mistake to expect any fundamental change of approach from the Chancellor.
The likelihood is the Spring Statement will be just that – an update on the state of the nation’s finances rather than anything filled with more significant announcements. The Chancellor will doubtless wish to argue his Budget decisions have been vindicated, but will surely wish to keep the proverbial powder dry, sticking to his commitment of a single Budget later in the year while leaving his options open for an earlier emergency ‘fiscal event’ dependent on the outcome of the Brexit withdrawal agreement.
This point is particularly pertinent, and it’s worth noting that, while the ONS might have announced a record surplus, credit agency Fitch has threated to downgrade the UK amidst continuing speculation we could crash out of the EU without a deal on 29 March. The economic news today is not all good for the Chancellor.
The far-better than expected surplus should, in theory, provide a bit more of a Brexit cushion while also providing the Chancellor with some of the funds to continue the increased spending committed to the NHS. But, while businesses should continue to plan for the possibility of a Budget far earlier than the autumn, the Chancellor will face some tough calls in his major fiscal event of the year. There will be a public expectation for spending to increase to demonstrate an end to the near decade of austerity, while departments like the Ministry of Defence face budgetary black holes of billions of pounds and will be pushing hard for increased funding.
Today’s figures allow Mr Hammond to take something of a bow following the Budget. But don’t think it’s about to get any easier for the Chancellor.