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“Flash the cash” Phil

“Flash the cash” Phil

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The UK Chancellor’s annual Budget statement has ended up on the generous side, with no sting in the tail (unless there is something buried in the detailed documents that wasn’t covered in the speech). No raid on pensions, for example.

It sounds not unlike a pre-election budget. Given that Hammond would have been expecting to have at least the main elements of the Brexit deal clear by now, in present circumstances, where a chaotic no-deal is still a distinct possibility, this is a “brave” budget.

The public finances have been much better than expected this fiscal year (despite growth being worse than expected, although it has picked up through the summer).  More importantly the independent arbiter of public finances, the Office of Budget Responsibility (OBR) has judged that at least part of that improvement in revenue flows to be permanent. Meanwhile public spending has remained well under control.

This windfall has amounted to £11.9bn this year, rising to £18.1bn by 2022-23. On its own, this would have delivered a small budget surplus by 2023-24, which would have met the Government’s “fiscal objective” of a balanced budget by 2025.

Much of this had already been “spent” by promises made during the year, such as the injection of funds into the NHS which rises from £6.3bn to £23.4bn (net of the benefit from higher tax revenue arising from the additional spending). But the Chancellor now looks to have spent all the rest, by appearing to have eased public spending by at least as much, if not more, than expected in almost every area – with some surprises like an extra £1bn for defence ahead of next year’s full spending review.

There was little mention of Brexit in the Chancellor’s speech. But the loosening of fiscal discipline is already apparent but probably not yet to the extent to affect overseas buyers of UK government debt.

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