Chancellor Philip Hammond will walk a political tightrope on Wednesday as he delivers his second Budget since taking over at the Treasury in 2016.
With a disappointing election result still fresh in the collective Conservative mind, there is pressure from many in the party to end austerity and turn on the spending taps to try to win over public support.
Tory MPs have been pitching their ideas directly to the Chancellor since September after he asked for tweet-sized proposals for the Budget, and Labour’s General Election pledge to borrow to invest seems to have struck a chord.
Yet Hammond has been resolutely clear that he doesn’t want to add to the UK’s £1.8trillion debt mountain and he will no doubt keep to his pledge – echoed by Labour – that any increase in day-to-day spending needs to be funded through either further cuts or increased taxes.
But while some Tories want to see spending increase, others believe the job of getting the UK’s finances back on track is not finished, and now is not the time to stray from the course.
Even if Hammond did have plans to dole out some cash in the wake of the election, a revision of the UK’s productivity by the Office for Budget Responsibility shows that the Chancellor has £17billion less to play with than he thought – leading to claims of a ‘safety-first’ Budget.
Here are five areas where Hammond is under pressure to spend:
1) Universal credit/Benefits
It has been one of Labour’s key campaigning issues since the General Election, but the Chancellor could now seize back the political initiative by reducing the six-weeks recipients wait for payments.
The move has been heavily hinted at in recent weeks, and according to Resolution Foundation analysis taking the limit down to four weeks would cost the Treasury between £150-£200million a year.
Last month, David Finch, Senior Policy Analyst at the Resolution Foundation, said it was right the government is “committed to the roll-out” of the benefit, but added: “Urgent action is needed to reduce the six week wait and there are simple steps that can be taken now to bring it down, including scrapping the seven-day waiting period before a claim is accepted.”
While reducing the six-week waiting time could be spun as victory by Labour, such a relatively inexpensive move would buy Hammond some favour with his backbench colleagues.
Another area where there is growing pressure to make changes is the benefit freeze. The Joseph Rowntree Foundation estimated last month that continuing the freeze, first introduce by George Osborne in 2015, would plunge 470,000 people into poverty by 2020/21.
Matt Whittaker, Chief Economist at the Resolution Foundation, said: “Unfreezing working age benefits would make a huge difference to many of the hardest-pressed families.
“It would cost £2 billion, but more than half of the money would be spent on lower income young people who have been at the sharpest end of many of the economic challenges of the last few years.”
CHANCE OF SIX-WEEK UNIVERSAL CREDIT WAIT BEING REDUCED: 4/5
CHANCE OF THE BENEFIT FREEZE BEING AXED: 2/5
Rarely has a topic been trailed so much in advance of a Budget – but not by the Chancellor – than housing.
Theresa May promised on Thursday that she would take “personal charge” of solving the housing crisis, and in yet another speech on the issue Javid put more pressure on the Treasury to borrow to invest.
Has this made an impact on Hammond?
During Treasury questions in the Commons just days after Javid’s initial call for cash, Hammond was asked if he would “resist the temptation” to fund new spending in the Budget “by billing our grandchildren”.
The Chancellor replied: “It is not responsible to make so-called hard choices by loading the price on to the next generation and the generation after that…our public debt in this country is still far too high so I can confirm to him that we will continue with the plans that we have announced to reduce the deficit in a measured and balanced way to ensure that debt is falling as a share of GDP.”
With increased public borrowing seemingly ruled out, Hammond may see tinkering with schemes such as Help to Buy to make it easier for first-time buyers to get on the housing ladder.
Julian Jessop, Chief Economist at the free market think-tank the Institute for Economic Affairs, believes this is the wrong approach: “He should be aiming to increase the supply of housing rather than fuelling demand in an already over-heating market by, for example, cutting stamp duty for first-time buyers.
“It would make far more sense to ease the constraints preventing enough homes from being built, by liberalising planning laws and devolving more power (and responsibility) to local authorities and housing associations.”
The Resolution Foundation’s Chief Economist Matt Whittaker agrees that tinkering around the edges will not tackle the housing crisis. He said: “Rather than announcing a range of micro schemes the sound good but all too often do little more than stoke demand, he should take the steps necessary to make a radical difference on housing supply.
“By exempting capital spending on housing from his fiscal rules, the Chancellor could give himself the freedom to make a genuine difference in this area – doubling spending on the Housing Infrastructure Fund and increasing funding for affordable housing.”
There are hints the Chancellor will announce measures to tackle the rise in homelessness, through increased funding to the regional bodies.
CHANCE OF BILLIONS BEING BORROWED TO FUND A HOUSE BUILDING PROGRAMME: 2/5
3) Public Sector Pay
The 1% cap on public sector pay increases is dead, thanks to the pay rises of 1.7% and 2% handed out to police and prison staff respectively in September.
Yet with inflation running at around 3%, even with those rises public sector workers have still technically had a pay cut.
Hammond is under enormous pressure to give nurses a decent pay increase after a seven-year freeze, especially as May must still have nightmares about her “there’s no magic money tree” comment to a nurse during the election campaign.
One Tory backbencher remarked after the election that the pay cap was in danger of becoming the defining issue for the party, while Conservative MP James Cleverly told HuffPost UK in October he met a woman on polling day who explained she couldn’t vote him “because I’m a nurse.”
The question, of course, is where will Hammond find the money from to fund the increases? The pay rises for police and prison staff have to come out of existing budgets, and Health Secretary Jeremy Hunt won’t be happy if he has to find cuts elsewhere to fund a salary increase for health staff.
IEA Chief Economist Julian Jessop said: “It looks inevitable that the public sector pay cap will be lifted for some workers, but this should be limited to those areas where there is unambiguous evidence of difficulties in recruiting and retaining staff.
“This decision should also be depoliticised as far as possible, based on advice from independent review bodies.
“What’s more, there should be scope for saving money at the same time. Examples include ending national pay setting in the public sector to allow greater flexibility, from the regional level down to individual employers, and addressing the differences that still exist in pension funding and provision.”
CHANCE OF THE PAY CAP BEING LIFTED FOR NURSES: 4/5
It went almost unnoticed on Thursday, but the Government handed the North of England increased powers to decide how money on transport should be spent.
The Transport for the North quango already has £260million in the pot, and Hammond might take the opportunity to further bolster the war-chest.
Jonathan Walker, political editor of the Newcastle Chronicle, told Huff Post UK: “It may be a step forward but there’s a lot of scepticism in the north east about this announcement as transport infrastructure has been underfunded for decades.
“Now would be a good time for the Chancellor to tackle the belief that the north is the poor relation to the south east when it comes to transport spending.”
CHANCE OF MORE FUNDING FOR NORTHERN TRANSPORT: 3/5
5) Education/Student Finance
Ahead of the Conservative Party Conference, Theresa May tried to take on Labour’s appeal to students by vowing to freeze tuition fees at £9,250 a year and increasing the repayment threshold.
There’s been little talk of it since as all the policy seemed to do was remind students that fees are very high and they have to be paid back. It’s unlikely Hammond will use his Budget to go much beyone what has already been announced.
Another area where Hammond is under pressure is education funding, with the Daily Mirror revealing last week two schools in the Prime Minister’s own constituency are asking parents to make donations to pay for pens and glue.
Since the election, Education Secretary Justine Greening has announced an extra £1.3billion has been found for school budgets ahead of the introduction of new National Funding Formula coming into force in 2018.
A group of headteachers who wrote to Hammond last week said even with the extra cash, schools face a real-terms cut of £1.7billion by 2020, compared with 2015 – a figure echoed by the Institute for Fiscal Studies.
But it is unlikely the Government is going to pump any more money into the sector, and the Policy Exchange think-tank believes there is still fat to be cut from the school system.
John Blake, Head of Education and Social Reform at the think tank wrote last week: “Policy Exchange recently asked teachers for their thoughts on how to save money in schools.
“Many of the responses, especially from longer-serving teachers, criticised the creation of new layers of management, each costing more money and often spending less time in the classroom, and many generating more work for other staff.
“Poorly implemented IT projects and ineffective use of teaching assistants was a common theme too. It is here, on the efficient use of the money they have already been given, that schools need to focus their attention, not simply demanding more cash to avoid making hard choices about how to run a more efficient and effective school.”
CHANCES OF A FRESH CASH INJECTION INTO THE SCHOOLS BUDGET: 1/5
CHANCES OF SIGNIFICANT CHANGES TO THE TUITION FEE SYSTEM: 0.5/5