Europe

The last budget before Brexit – but a deal hasn't happened yet

The budget appeared to have been pulled forward by two days to avoid being a halloween Hammond house of horrors.

Indeed there was not much to shock, offend, scare or upset anybody in the speech fitting for a Chancellor with zero political space, but having luckily received a bit of unexpected fiscal space.

The result was letting borrowing take the strain from what otherwise has been a sharp improvement in the public finances.

The deficit should have been closing in on zero. Instead, it is left at a persistent £20bn or so.

So the government retrospectively funded the promise made by the PM for the biggest ever cash increase in NHS funding, but did so without raising taxes.

In fact it cut them a bit by accelerating to this coming April, the rise in basic rate and higher rate income tax thresholds to £12,500 and £50,000 respectively.

At the time of that announcement in summer, even at the Conservative Party conference, the Chancellor had suggested that these spending rises would be at least partly funded by tax rises.

Not so, according to these numbers. But they may yet materialise on the other side of the Brexit fog.

In that respect – the extra spending on the NHS, not funded by a tax rise – there was an end to austerity politics.

But Mr Hammond was pointed in claiming austerity was coming to an end, rather than actually over. The government has calculated that there is no prize for a cash surplus.

The claim about austerity itself was more debatable.

The expected “fiscal envelope” for the spending review was conspicuous by its absence. It will be decided next year, though indicative figures were given. That is code for “after Brexit”.

Effectively this entire budget had a giant asterisk on the front of the Red Book – “only applies in case of a Brexit Deal”.

Indeed after what seemed like a Number 10 wobble saying all measures were funded regardless of Brexit, the Chancellor did confirm he would escalate next year’s spring statement to a “full fiscal event” i.e. an emergency budget, if there was a disorderly “no deal”.

So amid the jovial dad jokes about toilets, the shadow Chancellor’s falls and “Fiscal Phil” losing his rabbit out of the hat, the serious message to his own backbenchers was that no deal would mean no fiscal goodies, and plenty of pain instead.

And yet the Brexiters were mainly mute.

The coded threats of voting down the budget on Thursday from both Brexiters and DUP MPs have disappeared.

The budget provided incentives from tax cuts, to extra money for Universal Credit, to Northern Ireland funding for everyone to play nice and adhere to the confidence and supply agreement for now.

And yet the space for that was only created by not announcing a final Brexit compromise over the Irish backstop.

Had that occurred, the budget might have been held hostage by the Brexit rebels.

Passing the budget this week will then unleash a small window of opportunity of limited rebel leverage, for the prime minister to do a deal with Europe before trying to force it through the Commons.

It was the last budget before Brexit. It was also a budget dependent on a benign economic Brexit – something that is far from certain.

The immediate political uncertainty of Brexit rebellions on key budget votes, however, now seems off; bought off by fiscal Phil.

And for a government fighting week to week rather than year to year, that is enough to count as a qualified success.

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