Politics is a process of managing competing priorities. Resource is notionally limited, so policy decisions are a case of choosing between trade-offs. We can increase NHS funding if we cut pension tax relief – but will that reduce the incentive to save and cost the state more in the long term? And, more importantly, what do our backbenchers, the main lobbies, and perhaps even the public think about it?
But this budget may be different. Government has so many competing priorities, so many policies it has already committed to, and so small a majority that there are no easy options.
The first issue for the Chancellor is timing. Even though it’s been brought forward from the usual November date the amount of uncertainty over the future of the British economy makes it very difficult to forecast. The figures Hammond is basing his Budget on may well be obsolete in two months’ time. We don’t know whether there will be a Brexit deal, the outcome of which is expected to have a huge impact on our economy. The Chancellor has talked about a “deal dividend”, which he doesn’t know if he can spend or not. He also doesn’t know whether he’s going to have to invest in infrastructure for a no deal, like turning the M26 into a lorry park or chartering ships to deliver food. This uncertainty means, while he’s pledged to only hold one fiscal event per year, it wouldn’t be too surprising to see a ‘beefed up’ Spring Statement in 2019 including more policy detail or decisions delayed until the Comprehensive Spending Review also due in 2019.
The timing doesn’t help with his second problem – the deep divisions between the government and its backbenchers on Brexit. Hard Brexiteers are already rebelling in Parliament, causing the Offensive Weapons Bill (a relatively minor bill limiting the sale of acid and knives) to be repeatedly delayed as a show of strength. There is a suggestion the Finance Bill could be amended to limit government’s ability to provide extra funding to the EU, which it would have to do if the transition period was extended beyond the currently proposed two years. Chair of the European Research Group Jacob Rees Mogg has reiterated that the Budget is no longer a confidence vote so there’s no problem in voting against it (whether this is borne out in reality is another question). As well as concerns over Brexit, there is also the usual Conservative reticence towards tax rises – the last time the Chancellor tried to raise taxes he came off worse for wear and had to cancel the planned changes to NICs for the self-employed.
The DUP are also making threatening noises. DUP leader Arlene Foster refused to say whether her MPs would vote against the Budget despite being repeatedly asked, and the DUP abstained from a vote on the Agriculture Bill – considered a warning shot. Technically, voting against the Budget would break the confidence and supply arrangement agreed with the Conservatives in 2017 (and the state could ask for that £1 billion investment back), but the DUP’s support for an unchanged union may be a greater driver. Either way, May hasn’t shown any indication of going back on her red line against a trade barrier between Northern Ireland and Britain so their support may be secured.
Finally, the economic elephant in the room is the end to austerity which Theresa May promised in her speech at Conservative Party conference. For this to be borne out in the facts, there will be pressure to cancel planned cuts or increase investment in government services over time – particularly when Hammond sets out the funding envelope for the Comprehensive Spending Review next year. Not to mention the Chancellor already has to find £20 billion for the NHS, keep in place the freeze on fuel duty, potentially invest £2 billion in Universal Credit to dampen criticism of the policy, and money for any of the pork barrel policies currently being circulated (here’s looking at you Scottish Tories, pushing for frozen whiskey tax).
So how will he manage it? The issues in Parliament may mean it is death by a thousand cuts rather than a headline increase in income tax. People over 65 may have to start paying for National Insurance. Planned cuts to income tax may be scrapped, as cancelling a future policy is more palatable than a straight increase. There may be new taxes in areas where there is relative consensus, such as a on unrecyclable plastic or some more detail on the digital services tax Hammond threatened at party conference.
While Brexit uncertainty means this budget may not tell us much about the future state of the British finances, it will tell us a lot about government’s stability and power over its own backbenches, or lack thereof. In many ways it will be good practice for when the Brexit deal (if there is one) comes back to Parliament for its approval, because if there’s rebellion now you can bet there will be twice as much in the new year.