Much ado about nothing? Analysis of Autumn Budget 2018

Have the Conservatives finally ended austerity? Not yet, say Evan Byrne and Harry Spencer.

The mood in advance of this year’s Budget has been one of contradictions. On the one hand, it was widely expected to be a low-key affair, both fiscally and politically. Finalising and getting the Brexit deal through Parliament remains the priority; that coupled with the Conservatives’ lack of a parliamentary majority, means this was unlikely to be a budget of sweeping reforms. Certainly not with ‘Spreadsheet Phil’ at the helm.

But Theresa May gave the Chancellor some hospital passes with her pledges for £20 billion more for the NHS, to maintain the freeze on fuel duty and, most challenging of all, to put an ‘end to austerity’.

Hammond hasn’t been happy with the Prime Minister’s approach either: his “friends” (friends of any given politician usually being the said politician themselves) have been decrying May for spending £95 billion before the Chancellor even reached the dispatch box.

So how did the Chancellor manage to meet the spending commitments while also keeping Britain’s public finances on the straight and narrow?

With a classic May Government move: a fudge.

The Chancellor indeed declared that “the era of austerity is finally coming to an end.”

But the policies which backed this were limited: plans to raise the income tax thresholds were brought forward to April 2019 (enabling the Tories to tick off the ‘tax-cut’ box), business rates were cut for smaller businesses, and additional spending for the MoD and NHS was delivered.

The controversial Universal Credit, a pre-Budget crisis area for the Tories, was granted an additional £1 billion, and the work allowance under the scheme was increased – a policy which makes a big difference to those on Universal Credit at modest cost to the Treasury.

While the net spending commitments in the Budget were higher than for any Budget since 2010, it didn’t have the feel of a ‘giveaway’ Budget.

The end of austerity was actually achieved by unofficially abandoning the objective to eliminate the deficit; Hammond announcing that borrowing will be around £20 billion a year in 2023/24, beyond which date no figures are offered. This left the manifesto promise of a budget surplus well beyond the horizon. Perhaps the Conservatives could be accused of finding their own ‘magic money tree’.

Yes, the public mood has turned against the concept of austerity. Abandoning the Conservatives’ fiscal policy rhetoric of the past decade, without having achieved the actual end goal, leaves the party in a tricky spot. Trying to deliver the public’s raised expectations for investment in public services while having not actually built the strong fiscal position needed to do so will prove a challenge. If the economy deteriorates, the Government will be hostages to fortune and some will claim all the hardship experienced under austerity was for naught.

True to form for the May Premiership, there was no grand plan. Hammond positioned the Conservatives as a bit like Labour, but more responsible: blue, but with hues of red. As Hammond ended the Conservatives decade old fiscal policy, he didn’t have anything to plug the gap, bar a few stolen Labour policies – the ending of PFI contracts, for instance.

This is surely the central challenge for the Conservatives. Will people vote for “Labour light” when the full fat version is available? Hammond and May have blurred the dividing lines on fiscal policy – will they come to regret it?

Madano advises clients across the energy and industry sectors – if you’re interested in learning more please drop one of us or the team a line. You can also follow Madano on Twitter.