Hammond’s budget: chancellor must tread carefully to fend off rebellion

https://www.theguardian.com/uk-news/2017/mar/08/philip-hammond-budget-chancellor-hot-topics-brexit

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Budgets are always a balancing act. But just weeks before Theresa May plans to trigger article 50, and with multiple rebellions simmering on the backbenches, Philip Hammond will need to pull off an adept political performance on Wednesday. Here are some of the tough audiences he will be trying to please.

Anti-cuts Conservatives

The days of George Osborne’s “no plan B” are long gone, and since Hammond loosened the Treasury’s tax and spending rules in the autumn, a growing number of Conservative MPs have made their concerns known about the creaking state of public services.

Social care has been a particular bugbear. In the autumn, the government allowed local authorities to bring forward increases in council tax to tackle the short-term funding squeeze but stood firm against injecting extra money.

But the clamour from the backbenches has become louder; and Hammond is now expected to provide extra funding and take more concrete steps towards fulfilling May’s promise of investigating a sustainable long-term solution. Several Tories are now openly arguing that must mean tax rises.

It’s not just social care. On schools, hospitals and infrastructure, the impact of almost seven years of austerity is starting to be felt in Tory MPs’ constituencies, in a way that was not true in the early years of the coalition government.

Anxious investors

In theory, Brexit is priced into financial markets, and factored into boardroom thinking, already. But in practice, the Treasury still fears the economy will turn down once article 50 is formally triggered and reality starts to bite. Even more so, as the details of a potential detail start to emerge – or the negotiations turn out to be tougher than the government hopes.

Wednesday’s statement is Hammond’s last chance to show that he has enough financial headroom to take emergency action, if it is required, and to signal that he stands ready to do so. He won’t want to sound pessimistic but he will want to look prepared.

Boosting skills, so that domestic workers will be ready to adapt to Brexit, and take on jobs currently carried out by EU migrants, is another part of his determination to show Britain is getting itself ready.

Brexit cheerleaders

In the early months of the May government, Hammond was blamed by Brexiters for playing up the risks of leaving the European Union, not least when he warned in his Tory conference speech that Brexit would be a “rollercoaster”.

He was also derided by some for fighting a rearguard action to hang on to some key aspects of the status quo, including membership of the customs union, and even the single market, as the voice of economic caution in the cabinet.

Wednesday’s budget is likely to strike a more upbeat note about Britain’s prospects in order to avoid irritating the champions of Brexit – including the powerful European Research Group of Conservative backbenchers, who are quick to rubbish downbeat prognostications (and the politicians who deliver them – for example dubbing Sir John Major “bitter” last week).

‘Just about managings’

May has disowned the phrase Jams – “just about managings” – as a keen civil servant’s over-interpretation of her concern about struggling households.

But the fact remains that she used her first speech in Downing Street to pledge to govern with “ordinary working-class families” in mind.

Rising inflation as a result of the plunging pound, and a series of pre-announced money-saving measures, including tax credit cuts and a four-year cash freeze on working-age benefits, will hit low earners’ living standards in the years ahead, even before the economic uncertainty of Brexit. Hammond will be under pressure to match May’s high-flown promises with cash, to show she means business.

Red-meat cravers

While No 10 has shrugged off calls for a snap election from William Hague and others, Hammond will want to show his own MPs that he can put them in a position to win whenever the moment arrives.

He may choose to make a downpayment on some of the Tories’ manifesto pledges, including raising the higher-rate income tax threshold to £50,000 by 2020, for example, and is likely to press ahead with cuts to inheritance tax.

And with May keen to encroach on working-class constituencies, emboldened by winning the Copeland byelection, he could also reach for a symbolic aspirational policy or two – removing first-time buyers from stamp duty, for example.