Will the Chancellor's Spring Statement bring cuts or a spending splurge?

The Chancellor Philip Hammond must be accustomed to Theresa May stealing his thunder. She bounced him into spending an £18 billion tax windfall on the NHS last year, so it can’t have been a surprise when she kicked the can on Parliament’s meaningful Brexit vote right into the middle of his planned Spring Statement.

The Spring Statement does not generally affect tax and spend. Instead Hammond has previously used it to give an update on how the economy is performing.

But other than responding to whatever MPs decide on Brexit, what else could happen during the 13 March statement? The elephant in the room is the promised 2019 spending review, which will give an idea of the total amount of money available to government departments outside of the welfare bill. This is a lot of money - currently £288 billion a year - spread across government departments such as the Department of Health, the Home Office and others. It’s unclear whether Hammond will set out the amount of spending for the next few years or play safe with a one year plan.

The big question is will the Chancellor stick to the precedent he set last October, of topping up spending for favoured departments whilst promising continued cuts to non-protected departments and tax cuts to business.

The government has already promised to protect more than half of departmental spend, covering overseas aid, defence and the NHS, which comes to £156 billion a year. This means that the Chancellor has little room for maneuver when it comes to other parts of government.  

If these budgets remain protected, then the IFS estimates that, over the four years from 2019–20 to 2023–24, the Chancellor would need to find an extra £2.1 billion to avoid real cuts in non-protected areas; £5 billion to avoid this spending falling in per-capita terms and £11 billion to avoid it falling as a share of national income.

Can the Chancellor possibly find these sums by taking money from other areas, for example working age benefits or pensioners? It would be difficult given the crisis in Universal Credit and previous commitments made to older people through the pensions triple lock. Or will Hammond be lucky again and be able to use better than expected tax receipts to ease any cuts, as the Financial Times has reported?

However, without a surge in tax receipts, will cuts continue? This will be politically difficult as further cuts will bring even more serious hardship. For example, in local government, a number of councils are thought to be on the verge of insolvency and the prison system is in disarray with levels of violence remaining at record levels.

With real terms spending on public services predicted to be lower in 2023, than in 2011 (despite 13 years of GDP growth) perhaps the Chancellor will borrow to fund a shot in the arm for public services, whilst praying that a recession isn’t around the corner?

Or acknowledging the long-term pressures the UK faces, for example as a consequence of an ageing population, will Philip Hammond take heed of the public’s support for more spending, paid for by high taxes, for example on wealth.

That said should MPs fail to rule out “no-deal” on the 13 March, will anything the Chancellor says about future spending simply be drowned out by the uproar about Brexit that will follow?
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