Raymond Doherty 30 Oct 2017 03:49pm

Hammond is in a Budget bind, says Johnson

Phillip Hammond is in a “genuinely difficult bind” on what to do in his first Budget post-General Election, says Paul Johnson, director of the Institute for Fiscal Studies (IFS)

Speaking to economia, Johnson said the best route for the chancellor may be “to do very little and leave himself some room for manoeuvre later on,” but that would be difficult politically.

“The political pressure on Mr Hammond must be to do something more substantive,” he said.

Johnson was speaking at the launch of an IFS report at ICAEW headquarters in London this morning.

The IFS found that the chancellor is “between a rock and a hard place” on whether to increase public spending or keep to his deficit reduction targets.

The Budget is the first since a General Election – typically a chance for a chancellor to see out of his stall – however Hammond is hamstrung by a number of factors including; a small majority government; deterioration in the projected state of the public finances; and the unknown impact of Brexit.

The report also predicts an almost £20bn black hole if forecasters downgrade their productivity growth estimates.

Carl Emmerson, deputy director at IFS and co-author of the report, said, “Public sector workers, the NHS, the prison service, schools and working-age benefit recipients, among others, would like more money.

“Even if Mr Hammond does find some, unless it did represent a very big change of direction, it won’t mean ‘the end of austerity’. Tight spending settlements, net tax rises and cuts to working-age benefits are all putting significant downward pressure on borrowing over the next two years in particular.

“Given all the current pressures and uncertainties – and the policy action that these might require – it is perhaps time to admit that a firm commitment to running a budget surplus from the mid 2020s onwards is no longer sensible.”

The Budget will be held on November 22.