Today Philip Hammond will present his second Spring Statement, setting out the latest economic forecasts and the state of the nation’s finances.
These are intended to be low-key affairs; a welcome move to having just one budget a year. Today’s Spring Statement should certainly pass that test — it’s not even the most anticipated item on the Commons agenda for this afternoon.
Despite focus being (quite understandably) elsewhere, the chancellor’s Spring Statement is still worth paying attention to. Here are a few things to look out for:
1 A weak outlook for growth
In the budget in October the chancellor presented a dreary set of economic forecasts from the Office for Budget Responsibility (OBR, the government’s official forecaster). Growth in every year was set to be significantly less than the 2 per cent and more that we were accustomed to in the half century or so in the lead up to the 2008 financial crisis.
Since October growth has been even weaker than expected, and last month, the Bank of England (the other public sector forecaster) downgraded its growth outlook for the next couple of years. The OBR could well follow suit. If correct this would mean average living standards only improving slowly over the next few years.
2 Lower borrowing?
Back in October Mr Hammond was able to announce tax revenues were outperforming previous forecasts, giving the chancellor a welcome fiscal windfall. Despite the economy performing worse than forecast since then, he may be able to repeat the trick again — tax revenues have been even stronger over the last few months.
This means that the OBR is likely to revise down further its forecast for borrowing. After many years of fiscal consolidation, borrowing this year is expected to be at its lowest level since 2001–02. If borrowing is forecast to be lower in subsequent years too, the chancellor may indicate that he intends to spend this windfall just as he did at the budget. Or he could bank it to give him more room to manoeuvre in case, for example, we were to embark on a no-deal Brexit.
3 An end to austerity?
Despite having promised an end to austerity, the chancellor’s latest plans still imply further years of cuts for “unprotected” areas (those outside of health, defence and aid).
The chancellor is yet to finalise how much money will be available for the spending review that will come later this year. He may choose to confirm that today. If he does, and if he fails to provide an extra £5 billion a year at least by 2023–24 for government departments, that will mean further cuts in per capita terms for those unprotected areas, though this would be cuts a much slower pace than the big cuts those areas have experienced since 2010.
All forecasts are subject to change — this one especially so given the political and economic uncertainty. But the Spring Statement is a timely reminder that the nation faces challenges beyond Brexit. Slow economic growth, which has made reducing the deficit much harder than anticipated, is expected to continue. And while the deficit is now back to below pre-crisis levels it is some way off being eliminated entirely. Despite this, the latest plans imply further cuts for unprotected public services, on top of very big cuts since 2010, at a time when many of those services are showing signs of strain.
This article was originally published in The Times and is reproduced here with full permission. Thomas Pope is a Research Economist at the Institute for Fiscal Studies.