JAMES BALL: Will May be brought down by the budget?
- Credit: PA Wire/PA Images
JAMES BALL says despite the week of theatrics for the UK government, the bigger challenge ahead is still whether they can pass a budget.
This has not been a week short on theatrics for the UK government, whether in the Commons chamber or EU negotiating rooms. But despite all this public drama, there is – if the government lasts long enough – a still bigger challenge ahead for the government, landing much sooner than the crunch Brexit Day: they need to pass a Budget.
'Spreadsheet' Phil Hammond, the unflashy chancellor of the exchequer, has to present the UK government's Budget for the next year on October 29 – less than a fortnight from now. This is then followed by five days of parliamentary debate on the proposals therein, and a critical vote on whether parliament will give the Budget its approval.
While this is no longer a 'confidence' vote that would bring down the government – thanks to the Fixed Term Parliament Act – it is all but inconceivable that a prime minister could remain in office after failing to pass this critical vote on the government's policies for the year ahead.
The omens for the chancellor, though, could hardly be worse: if Theresa May's government has been characterised by kicking problems down the road – especially on Brexit – they have done it perhaps even more so on this year's Budget.
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Budget days are always tricky things: given the need to sort out taxation to cover most new spending – or else blow up government debt – it's always something of a conjuring trick, trying to make sure there's enough surprise 'good' news to mask the inevitable revenue-raising tricks therein.
The problem for Hammond is there has been an awful lot of 'good' news promised in advance. The government has promised the 'end of austerity', an eventual increase of £20 billion in NHS spending, and has committed to increasing defence and aid spending. That's a lot of good headlines already wasted – and a lot of things to find a way to pay for.
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That's just the economic problem: Hammond has a political headache, too. As it stands, the DUP – who prop up Theresa May's minority government – have said they will refuse to vote for the Budget if they are unhappy about the government's Brexit plans.
Buying them off the first time cost around £1 billion in extra spending. This time, given how furious they are over Brexit, and how much leverage they know they have over May, it could be even harder (if that is even possible). So far, so bad. But this week the widely-respected Institute for Fiscal Studies set out its 'Green Book' preview of this year's Budget, and it lays bare the size of the rabbit Britain's greyest magician will have to pull from his hat.
The first problem the IFS draw our attention to is that despite pledges to end austerity, there are currently £4 billion in departmental spending cuts planned for next year – which Hammond has to either follow through on, risking the 'end of austerity' pledge, or cancel, leaving him with £4 billion extra debt, or funds to raise.
The next is the bill for the promised increases to NHS, defence and aid spending, which by 2022-23 – the final year of forecasts covered by the upcoming budget – will cost £13 billion a year. Given the government is currently promising spending will be £2 billion lower than it is now, he has between a £15 billion and £19 billion black hole in his finances, before a single giveaway.
That means Hammond either needs to u-turn on eight years of Conservative rhetoric – that the deficit, and cutting it, matters – or else raise billions in new revenue, without the option of more cuts (ie more austerity).
That leaves him really only one option: raising taxes – a tricky proposition for any Conservative chancellor, let alone one operating in a fractious minority government. As an idea of the scale of a £19 billion tax hike, the IFS notes it would be equal to adding 1% to income tax, National Insurance and VAT. Imagine the headlines if he tried that.
All of these are before, remember, Hammond tries to offer a single positive new policy, or any kind of giveaway – such as a freeze on beer duty, or similar.
Most importantly, all of these headaches don't even begin to factor in the potential impact on public finances of a hard Brexit, or even more disastrously, a no-deal. Even without factoring in Brexit, the chancellor has been set an insurmountably difficult task – with it, his mission is all but impossible.
We might be focused in on the possibly staged – or at least over-hyped – ructions between Theresa May and the EU, and May and her backbenchers. The real drama, and the real damage, could arrive far closer to home.
Such is the danger of being in office but not in power: May's government can't get anything done, and has to over-promise just to stagger through the day-to-day. While Brexit will be the ultimate reckoning of that, May has managed to delay and dodge showdowns, and can probably do that for another month or two more.
Not so with the Budget: it's coming, on October 29. Can the government make it through?
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