22 Nov 2017

Philip Hammond had a near-impossible task, delivering a budget at a time of deep economic uncertainty and in a hung parliament where some of his own backbenchers view him with impatient disdain. But given that the Treasury had played down hopes in advance, and thousands of words had been written about Hammond’s constrained position, he arguably exceeded the relatively low expectations of Tory MPs and the wider world. At least this was a budget that will not damage a vulnerable Chancellor in the immediate future and might make his position a little more secure.

Expectations might have been low but three significant themes defined Hammond’s budget. Together they shape and define the Government’s agenda for the rest of this parliament, one that may just last until 2022.

The first theme took the form of the latest forecasts from the OBR, revising its growth forecasts downwards for the next three years. These may or may not prove to be correct.

The revisions arise partly from guesswork over the impact of Brexit. The head of the OBR, Robert Chote, is the first to acknowledge that his forecasts need to be treated with even more caution than usual. No one knows precisely what form Brexit will take or what the consequences will be. Even so, the gloomy revision highlights the economic constraints that Hammond must assume he faces over the next few years. Equally significant, the OBR revisions confirm that the Chancellor is surrounded by institutions that are pessimistic about the impact of Brexit, at least in the short term. From the OBR to senior Treasury officials and on to the Governor of the Bank of England, Mark Carney (who is privately even gloomier than in his public pronouncements), Hammond hears little to lighten his mood about Brexit.

In March the OBR forecast a growth rate next year of 2%. Now the forecast is 1.5%. Hammond was under wilfully unfair pressure from some of his MPs and parts of the media to deliver a game-changing budget, one that would transform the prospects of the Government. He could never deliver such a programme against the background of Brexit and darker growth forecasts.

But May remains determined to be remembered for more than being the Brexit Prime Minister. Her allies tell me she is more resolved than ever to be seen as the Prime Minister that tackled the housing crisis. Housing, then, is the second defining theme of the Budget. Hammond announced an extensive package, but like the OBR’s forecast it needs to be treated with caution. Scrapping stamp duty for first time buyers up to £300,000 along with a fairly ambitious building programme is one of several measures aimed at younger voters. Behind the scenes, senior Conservative strategists are obsessed with the need to woo young people, who voted in significant numbers at the last election. The obsession is reflected in smaller proposals including a railcard for under thirties. But the scale of the housing proposals do not match the publicly expressed views of the Communities Secretary, Sajid Javid, who spoke of the need for an urgent £50 billion investment programme as recently as a month ago. Instead Hammond opted for what he calls a “balanced approach”, an extensive investment programme but not as big or as speedily implemented as some of his colleagues had hoped.

The balance is not merely a reflection of Hammond’s cautious political personality, but of the wider political context. The third theme is the degree to which the hung parliament limits the room for manoeuvre. I am told that he ached to lower the threshold at which small businesses pay VAT, but did not dare to implement such a change. Instead he announced a review. He did so because he feared a revolt from Conservative MPs. He could not resist making the case anyway, pointing out that other equivalent countries have much lower thresholds.

Hammond knows unpopular tax increases risked a defeat in the Commons. A freeze on fuel duties and a freeze on beer duties are an example of where campaigns for such moves can benefit from a hung parliament. Hammond would not dare to risk another backbench revolt over an unpopular tax rise.

A similar sense of Hammond-like balanced caution applies to other proposals. He announced additional funding for the NHS, but at a level nowhere near as high as the head of NHS England, Simon Stevens, has been calling for. Additional cash was announced to plaster over the cracks in the implementation of Universal Credit, but not as much as was taken away from the scheme when Iain Duncan Smith resigned from the Cabinet in protest.

When Hammond and Theresa May – who was extensively involved in advance – discussed possible measures, they posed two related questions. Does a measure risk being defeated by a backbench revolt? If there were any risk, then the measure was not included. The other question was whether any measure risked imploding on closer scrutiny.

The outcome of their often tense talks was inevitably a fairly cautious, incremental budget, but in terms of housing May clings to her hope that she will address what she calls the “housing deficit”. She uses the term regularly to imply an equivalence of mission to the budget deficit that framed George Osborne’s era in the Treasury.

In terms of what follows, the Budget will fade from memory fairly quickly, probably to Hammond’s relief as his previous one is remembered for reasons that undermined his reputation not least in the minds of some in Number Ten. If May is forced to have a reshuffle, or chooses to do so, I will be surprised if she feels strong enough to sack Hammond.

With the Budget over, her focus is on the EU summit next month where she is confident of securing a breakthrough, at least in terms of the Brexit bill. She would not be wasting political capital now, increasing the offer to the EU and securing the support of Boris Johnson and Michael Gove, if she was getting signals that her offer would be rejected. Instead she hopes for agreement. It is the issue of Ireland, and the need for a soft border, that is still unresolved and without obvious resolution. But May needs to return from the December summit with an announcement that the Brexit talks move to future trade arrangements. If she does not, she and her government will be plunged into a deep crisis that would make this budget seem like ancient history.

Even if May is determined to be seen as a Prime Minister with a distinct domestic agenda, Brexit hovers over every issue. This was a budget delivered deftly by a Chancellor with little room to breathe.