Top of the Charts Budget special: Debt, bad bosses and a 31bn pound question

Published on Public Finances and the Economy

Bad jokes, disappointing reveals, a tradition of alcohol consumption and a hangover the day after when we realise it all has to be paid for – yes it’s just 60 days until Christmas 3 days until the Budget.

We’re casting Robert Chote of the Office for Budget Responsibility as Santa Claus for the purposes of this extended analogy, in the expectation that he’ll deliver a £13bn gift to Philip Hammond (details below). Meanwhile Top of the Charts is some kind of (less glamorous) Nigella Lawson or (less rich) Jamie Oliver – helping you prepare for the big day. So, for those who like to open their presents early, below is our special Budget-themed set of reads for the weekend.

Merry Budget,

Torsten
Director, Resolution Foundation

Ps. If you find our Budgets weird, this is how the rest of the world sees them.

Bad boss. The thing to remember about this Budget is that it was expected to be incredibly low key – on the not unreasonable basis that the government could do without any more rows in the middle of the run-in to the Brexit vote. And it certainly won’t be as rammed full of politically difficult policy choices as you’d normally expect of a Budget less than 18 months on from an election. But it can’t be quite as low key as Philip Hammond originally intended – because the Prime Minister hugely raised the stakes in her conference speech back in September. To save you trawling through it, here’s the key passage: “When we’ve secured a good Brexit deal for Britain, at the Spending Review next year we will set out our approach for the future. Debt as a share of the economy will continue to go down, support for public services will go up. Because, a decade after the financial crash, people need to know that the austerity it led to is over”. So debt falling and austerity ending post-Brexit is the task the Chancellor has been set. Be grateful your boss hasn’t given you that job over this weekend.

The 31bn pound question. Austerity means different things to different people. Ending it means £31bn additional spending to us. As our Resolution Foundation pre-Budget Briefing set out, this would be enough to ensure both that cuts to departments’ day-to-day spending are brought to a close next year, and that Universal Credit cuts and the upcoming fourth and final year of the benefit freeze are scrapped. It’s possible to quibble over the precise value, but one way or another ending austerity means finding a lot of cash.

Sofa so good. To keep the Chancellor’s spirits up, on Tuesday the Financial Times splashed on the news [£ but see non-pay walled image and other papers’ takes] that the Office for Budget Responsibility (OBR) has been looking down the back of its sofa and found a spare £13bn knocking around. It all stems from the fact that, since the Spring Statement back in March, tax revenues have come in much stronger than the OBR had anticipated (government spending’s a bit lower too). The upshot is that the government could be on course to borrow as little as £24bn this year (the lowest since way back in 2001-02, when the silly Europe debate of the day was whether we should join the euro, rather than how many ships we’ll need to commandeer in the event of a no deal Brexit). As presents go, it’s a good one. It’s more than enough to allow the Chancellor to pay for the first slug of the extra £20bn promised for the NHS without having to put up taxes next year.

Calm down dear. Magic money turning up just in time to save the Chancellor having to get tax rises through parliament? How very convenient you might think… But calm down on the conspiracy theory front. Not only have we known for some time that tax receipts were coming in better than expected this year, but the admirably transparent OBR itself basically told us in September that it was taking steps to address a historic pessimism in its short term borrowing forecasts. And expect lots of caveats to the OBR’s new forecasts on Monday – not only are we at a time of heightened economic uncertainty, but the earlier than expected Budget means there’s less hard data available to base those forecasts on.

Debt debt debt. Nice though this £13bn windfall is, it isn’t enough to mean that the Chancellor can simple borrow to meet the £31bn bill for ending austerity. Because if he did, debt would no longer be falling as a share of national income. And being able to say that debt is falling is now the government’s main fiscal rule. So some taxes will need to rise at some point, even if not in this Budget. I’d expect him to raise £2bn from freezing income tax thresholds alongside some less visible revenue raisers. Falling debt matters all the more because the Conservatives believe it is a key dividing line between themselves and John McDonnell’s plans.

Opposition action. On Budget day it is the Leader of the Opposition, not the Shadow Chancellor, who responds to the Chancellor. God knows why, but don’t worry those huge John McDonnell fans out there – you got two for the price of one because the Shadow Chancellor set out Labour’s approach to the Budget yesterday. In short that whatever the Chancellor does it won’t be enough to end austerity, and that Labour will tax and spend £49bn more. It shouldn’t be a hard speech for Jeremy to write given all the material that Theresa May’s promise to end austerity throws up – expect lots of totally reasonable “austerity isn’t ended as long as X and Y continues” lines. The challenge Labour has is that almost all of their planned extra spending is for new commitments (scrapping tuition fees and extra childcare support etc) rather than about either preventing other difficult trade-offs within the government’s plans or reversing many of the cuts of the last eight years.

No deal? You might have heard some mutterings about whether the Government will lose votes on the Budget because of Brexit related threats from the DUP. My view is this is basically hot air. But here’s a more serious engagement with the issue of what votes follow a Budget to make sure we can actually collect the taxes that keep the state functioning. The key bit of politics is that there’s no longer even any semi-automatic link between a Budget-related vote being lost and a general election – if there ever was.

Chart of the week. The eagle-eyed among you might have noticed that our £31bn end-of-austerity figure differs a bit from the £19bn figure the IFS came up with last week in its ever-useful Green Budget. There are some small techy differences in our approaches (real vs nominal, day-to-day spending vs investment, overall protection vs per capita), but the big one comes down to our decision to include reversing cuts to social security as a part of even minimal ending austerity. Our chart of the week serves as a reminder as to why we think that’s so important. It adds up all the tax and benefit changes – giveaways as well as takeaways – introduced since the 2015 Summer Budget (those that have a direct effect on household incomes at least). As things stand, households in the bottom half of the income distribution are set to be £610 a year worse off on average than they would be without the policy changes. And we’re only half way through the roll out of these benefit cuts. Any Budget claim of an ‘end to austerity’ will ring pretty hollow as long as the government continues to actively lower the living standards of the low and middle income families that the Resolution Foundation was created to help raise.