‘Eeyore’ Hammond stocks up for storm Brexit
Brexit hung over the budget delivered by the UK’s chancellor yesterday. Philip Hammond promised little as commentators compared him to Eeyore. Is his caution a sign of wisdom or complacency?
“An economy that has continued to confound the commentators.”
This was Philip Hammond’s bold description as he opened his budget speech yesterday. The UK, he said, was enjoying faster growth than all but one of its main competitors. Borrowing forecasts were down on four months ago. The national debt would fall from 2018–19.
The news was mostly better than expected. Perhaps, economists thought, the chancellor might choose to announce significant tax cuts or spending increases. But Hammond — true to his nickname “Spreadsheet Phil” — remained cautious.
He said self-employed workers would have to pay more in national insurance — prompting a bitter backlash, as some voters accused him of breaking a manifesto pledge. He continued a long-standing freeze on public sector pay. There were signs that council budgets could face significant cuts.
Hammond did promise some investment, and his most significant handout was a £2bn increase in social care spending. But there were far fewer measures than in most budgets, and no major headline-grabbing announcements.
He stressed “the task of getting Britain back to living within its means”. The Guardian’s Larry Elliott said Hammond had “kept his powder dry” and delivered the “boring” budget he had promised.
Much of the chancellor’s reticence is down to Brexit. Some of his colleagues are bullish and believe it will bring new opportunities; he is more apprehensive. Yesterday Kamal Ahmed of the BBC said the Treasury was playing “Eeyore to the rest of the government’s Tiggers”.
Is he right to be concerned? Inflation — the rate at which prices increase — is due to remain above the Bank of England’s target until 2020. This risks making people poorer in real terms, just as their growth in earnings is due to slow down. It will also put pressure on businesses to meet their costs, which could increase unemployment.
Meanwhile Britain’s workers remain unproductive and the election of Donald Trump has led to doubts about the global economy’s resilience. So has the chancellor got the right approach?
Hammond’s allies praise his wariness. Britain must reduce its high national debt — especially at a time of uncertainty. Meanwhile the chancellor is boosting skills and avoiding the temptation to engage in crowd-pleasing measures. All this will give businesses the confidence to invest, encouraging growth and prosperity.
But his opponents accuse him of complacency. As Brexit approaches the government must invest, to stimulate growth. This miserly budget will do too little to improve public services or alleviate poverty. And hitting the self-employed with a tax rise means hurting some of the most vulnerable workers in the country.
- Which worries you more: spending too much money or too little?
- Has Philip Hammond got the right approach to the economy?
- Write five questions you would like to ask Philip Hammond about his budget, either to understand it better or to scrutinise it further.
- You are a newspaper reporter responsible for writing a story about Philip Hammond’s budget. Write a 500-word article summing up the main measures and controversies. Make sure someone of your age could understand it.
Some People Say...
“Governments should spend as little money as possible.”
What do you think?
Q & A
- So a boring man delivers some boring figures. Why does everyone care so much?
- Hammond’s decisions will change the opportunities open to you and the nature of the society around you. If he does not spend enough money it could harm services you use — for example, your school may employ fewer teachers or your local hospital may have fewer doctors. But if he charges too much in tax it could put off investors, making it harder for you to get a job when you are older.
- But he doesn’t seem to have changed much.
- That is still important. It means the government’s focus will stay the same, probably concentrating on bringing down the UK’s public debt. You might welcome the extra confidence this will bring — or you might worry that the government is not doing enough to address problems you care about.
- The Office for Budget Responsibility, an independent body which monitors economic figures, says Britain had the second fastest growing economy of the G7 nations in 2016. Germany was first.
- UK borrowing was lower than forecast in 2016–17 but still due to be £100bn more than before last year’s EU referendum.
- For example, in electric vehicles, technical education and artificial intelligence. He also outlined plans to help the oil and gas industry.
- This month the UK is expected to give notice to leave the EU. Hammond favoured Remain in the referendum.
- Inflation is predicted to be 2.4% in 2017–18, higher than expected, and to remain above the Bank’s 2% target until 2020. The main reason is the pound’s weakness since the Brexit vote. This has increased import costs, leading to higher prices.
- It would increase if businesses cut staff to compensate for increased costs, depressing growth and placing more strain on welfare spending.
- ONS data shows UK productivity to be 2nd lowest of the 12 richest nations, 31% lower than in the USA.