Five things to look out for in Philip Hammond’s Spring Budget

It is not a budget on Tuesday, for this new Spring Statement will simply be an update on the economy and public finances but any indication about future spending will be very welcome

Will the Chancellor give an indication about future spending? (EPA)

On Tuesday Phillip Hammond will be able to declare that he has achieved a current fiscal balance for the Government – that this year will be the first since 2001-02 that any British government has covered current spending by taxation and only borrowed for investment. That was Gordon Brown’s golden rule, though it carried the qualification that the current balance should be over the economic cycle, and we may be fairly close to the top of this one. (The other rule, that total public debt would not rise faster than the economy, has been blown to bits.)

So have public finances been fixed? Can the Government start feeding additional money back into public spending? It is not a budget on Tuesday, for this new Spring Statement will simply be an update on the economy and public finances but any indication about future spending will be very welcome. The point is a simple one. In the early days of the squeeze spending on public services improved. Departments and local authorities found they could do more with less, and customer satisfaction rose. Now, while some further cuts are projected, there is a real struggle in many departments to maintain quality of service. So more money will have to be spent.

Next, look for the economic forecast from the Office for Budget Responsibility. Growth last year was a little better than expected in November, 1.7 per cent rather than 1.5 per cent, and I expect that will eventually be revised up further. But this year? One reason for confidence is that government revenues have been quite strong. That suggests that growth is holding up, thanks in part to reasonably strong demand for exports to Europe, but let’s see if the OBR is confident too.

The key numbers from the OBR, as always, will be the budget deficit for this year and next. The projected numbers have been bouncing all over the place. Last year the deficit was £47bn, but the OBR thought it would go up this year. In November it revised down its projected number from £57bn to £50bn. Now, thanks to higher revenues, it may be as low as £40bn – ie this year the deficit may still be coming down, not going up. To put this in perspective, GDP is around £2,000bn, so a £40bn deficit is equivalent to 2 per cent of GDP, which is more or less OK.

Or rather it would be OK, if it were not for three things. One is that there is likely to be some cost associated with Brexit, now little more than 12 months away, though we have to regard all projection as speculation. Two, there are the long-term pressures from an ageing population, though the fact that more and more people of retirement age are still working helps quite a lot. And three, the point above, the squeeze on spending has to be eased.

Now what about the next financial year, the one that starts next month? The question here is whether the number goes up or down. The OBR will do its best and it is honourable and measured in the way it makes its calculations, but it was too pessimistic about this year. Maybe because of that it will err the other way. Or maybe because the economy has done somewhat better it will think that we are closer to full capacity and be more cautious. Either way, this is really interesting.

Finally, there is the world outside the UK. This is not directly the subject of Tuesday’s event, but it shapes everything. You can see this in terms of a global pecking order. This year China’s economy will pass that of the eurozone for the first time ever. And India will pass the UK and France for the first time, in the case of the UK, since the 1890s – prior to that it was much larger, though of course it had a vastly larger population. As Jim O’Neill, now Lord O’Neill, the former economics chief at Goldman Sachs, points out, what happens to the world economy is much more important to UK prosperity that what happens over Brexit. Will the Chancellor take this opportunity to acknowledge that? I hope so.