Philip Hammond has promised MPs a short, snappy affair when he delivers the government’s first spring statement to the Commons at about 12.30pm on Tuesday.
Shorn of tax and spending measures, the chancellor’s 15- to 20-minute speech will play second fiddle to the budget, which has been moved to the autumn.
Attention will focus on the latest forecasts for the economy and the public finances provided by the government’s independent forecaster, the Office for Budget Responsibility, which last reported in November.
This is what to look out for in the chancellor’s statement:
Current growth forecasts, published for November’s budget, are relatively gloomy
GDP growth forecasts, November 2017, annual % change
Guardian Graphic | Source: OBR
Hammond is likely to say that the outlook for growth is marginally better than it was three months ago. In November, the OBR said it was expecting the economy to expand by 1.5% in 2017 and by 1.4% in 2018. The latest official figures from the Office for National Statistics show that growth was actually 1.7% in 2017 and the consensus among City, business and academic economists is that something similar is likely in 2018.
In the past, chancellors have used their statements to boast about the UK outperforming other economies, but that won’t happen on this occasion given that Britain grew more slowly all the other G7 countries in 2017 bar Italy.
In November’s budget the OBR predicted productivity would grow 0.9% in 2018, up from 0% in 2017
Productivity growth forecasts, November 2017, annual % change
Guardian Graphic | Source: OBR
The statement is expected to provide positive news about productivity – the weak spot in the economy since the financial crisis a decade ago. In its November 2017 report, the OBR gave up waiting for the improvement in productivity – economic output per hour worked – that it had been predicting since it was created in 2010. So it slashed its productivity forecast by 0.7 percentage points a year for each of the next five years. However, as the OBR was downgrading its forecasts, the picture for productivity improved, with growth of 0.8% recorded by the ONS in the fourth quarter of 2017, following 0.9% growth in the third quarter. At this stage, however, the OBR will want more good news before it thinks about revising its five-year forecasts upwards.
The UK has eliminated its current deficit budget through improved tax receipts
Public sector borrowing and budget deficit, rolling 12-month totals, £bn
Current budget deficit
Guardian Graphic | Source: Resolution Foundation analysis of ONS
Hammond is expected to say the government will not need to borrow to cover its day-to-day spending this year – the first time this has happened since the financial crisis. That is because the borrowing needed to cover the gap between the amount the government spends and the revenue it raises through tax is on course to be about £40bn in the the 2017-18 financial year, rather than the £50bn predicted by the OBR three months ago. Government spending comes in two forms: current spending, which includes items such as teacher salaries and the NHS drugs bill; and capital spending, which includes investment in roads and railways. A deficit of £40bn would mean that the borrowing this year would solely be for investment and allow Hammond to say that there is light at the end of the tunnel.
Britain’s government debt
Public sector net debt as a % share of GDP. Projections under two scenarios
Debt under recession conditions
Guardian Graphic | Source: Resolution Foundation modelling. Both scenarios assume GDP growth follows Nov 2017 OBR forecasts to 2022 with steady 4.1% growth thereafter.
However, Hammond is expected to use the high level of national debt to say that Britain is still in the tunnel. The national debt is the sum of all the annual budget deficits and surpluses the government has been running down the years and it has risen sharply as a result of the big annual deficits that have been run in the past decade.
This year, the debt will hit £1.8tn but a better measure is the ratio of the debt to the annual output of the economy (gross domestic product). The national debt was below 40% of GDP when the financial crisis began in 2007 and is expected to peak in this financial year at just over 85% of GDP. Hammond will say a reduction in the national debt would put the UK in a stronger position to weather another recession.
Although the chancellor has said specific tax changes must wait for the autumn budget, he is likely to announce a series of consultations in areas where future action is possible. These could include the VAT threshold for small businesses, the tax paid by multinationals, curbs on the use of plastic in packaging via a so-called “litter levy” and the impact of artificial intelligence on the economy.