Budging the budget

Or “why I’m not even going to try this year”.

So, the budget is just under a month away and there are signs from certain quarters that there may be some interesting announcements coming up.

For the last few years I, like I suspect many people who will read this blog, have had to try and decipher what might be coming, be prepared with statements in case something comes forward that is liked/ disliked, etc, etc. Filtering policies that have been floated, gauging potential reactions from different sectors, considering economic impact, being ready for what is to come, it’s all important work that someone’s got to do it.

Well, this year I’m not going to try not to bother to do this in advance. But what I will do is will explain why this year is different and what I will be looking out for on the day.

Firstly (and apologies for boring anyone) it’s worth understanding that the budget is two things. It’s the formal tax and spend setting that comes with its own parliamentary time. But it’s also a chance for government to push out new policies and plans and set the agenda for a little while. 

Just one year ago it must have sounded like a great plan to separate the budget and the actual implementation of policy by 4 and a bit months. Having “the budget” in November but implementation of policies (most notably tax policies) at the start of the financial year in April gave companies, tax advisors and individuals time to prepare for the new regime. In any normal time a government in November is likely to last until April in order to implement the policies it is proposing.

But we are not in normal times. Perhaps when Philip Hammond announced the date change he felt pretty secure that the government who proposed policies in November 2017 would be able to implement those changes in April 2018. But that now looks worryingly like hubris.

In policy terms, a weak government means we should adopt an air of cynicism about whether announced policies, especially those outside the formal budget, will actually happen.

Not all policies announced in the budget follow the tax year, of course. Government can always find money when it has a need to do something quickly. It is possible that changes, for example raising the housing revenue account (HRA) borrowing cap to allow local authorities to build more homes, could be brought in straight away, although more on that particular policy is below.

This will all depend on what the government need to do to make changes, whether new legislation or parliamentary time is required to bring it through. I think we can often mistake what is on the news for what is happening at parliament, but there’s no doubting that legislation is going to be snarled up whilst days and days of debates go on about Brexit. Put simply, the more time something needs in parliament (due to repeat consultation rounds, committee stages or simply discussion time) the less likely it is to be finished before parliament is prorogued.

If parliament is dissolved, for example due to an election, that will add in further delays to legislation and, if there is no agreement about carrying on with particular bills, it could stop them dead in their tracks. This won’t apply for tinkering changes but let’s say, for example, that a new housing and planning bill is announced on the same day (yes, another one; they’re like buses), containing a large number of the things that have impressed Lord Porter. If an election happens on a completely different topic whilst the bill is being drafted or discussed it could wipe the bill clean away and it would be for the new government to decide what to do next.

Similarly, if there is a change of government without an election, they may come forward with a whole new set of proposals and kick anything from the previous government into the long grass. Perhaps they’ll be concerned with implementing a no deal brexit and, let’s face it, that will eat up so much parliamentary time across all departments that anything else is likely to not even be a sideshow. (It might be a good time to slip through some minor changes whilst no-one is looking, though.)

On some of the changes, such as the aforementioned HRA borrowing cap, the budget itself has to be understood as essentially a Treasury document. What we’ve heard previously is that the reason this hasn’t been implemented is because of a Treasury view that local authority borrowing on housing is part of the country’s borrowing (something called the public sector net cash requirement or PSNCR).

Like anyone who has spent any time looking at British economic policy, I’ve come to my own opinions of the role of the Treasury in allowing policy changes to come forward. Quite often, especially on its own patch, the Treasury can be lithe and forward thinking. In other areas, particularly if there is an established “view” the Treasury can be unmovable. They’re also the only department in government that it is almost impossible to work around- especially if the policy cannot be funded based on the department’s current budget. What’s more, because they set (within some international parameters) the accounting standards, what they say goes.

If the Treasury thinks the local authority borrowing for housebuilding is part of the PSNCR then it is. No matter that other countries do it differently. It’s my view that this, coupled with a desire to not have 200 council leaders saying “we told you so” followed by “look at the fantastic homes we’ve built locally!” is what has stopped government significantly increasing the HRA borrowing cap in the last few years. Will this change, or will the Treasury find a way to keep it out of its document? That probably depends on ministerial judgement and skill; how far and how cleverly  are ministers prepared to push against the established view?

In normal times this might be quite possible, but with the Chancellor and Prime Minister both firefighting Brexit (and common enemies and each other!) can we expect them to bring forward, fight for against internal and external opposition and implement something they chose not to just a few months ago?

Which brings me on to the next issue we’ve seen in recent years which is a tendency, particularly on housing, to overpromise and underdeliver. If ministerial statements in the last couple of years are to be believed, housing has recently had more revolutions than Russia had in 1917. But every policy announcement has fallen flat, especially as central government seem keen at throwing their own money (and no-one else’s) at affordable housing whilst trying to berate housebuilders into acting against their economic interests to create housing supply. The £2 billion for affordable housing (remember that?) lasted less than 6 hours before it was pulled apart and shown to be little more than a damp squib.

Even if the housing summit went very well (and by all public accounts it did) these may still be seen as only suggestions. If the proposals require Treasury support (which, let’s face it, they will) then who is going to have that discussion with them? There was no-one from the Treasury present at the summit, so (to steal from Yes Prime Minister) an agreement there may turn into a suggestion to the Treasury, which could become a note to the Chancellor, which can be ignored in the general sweep of a budget, particularly an embattled budget from an under fire Chancellor.

I’ll try and put it another way. Big numbers make the government look good and big one-off injections of cash make the government look good on the news and can happen very quickly.  But they are unlikely to lead to the sort of transformative changes that can happen with dedicated policy change. Which would a Chancellor choose- particularly if he was being guided by officials against a big policy change? As I’ve said above, it’s simply hard to know if this government can deliver the big changes in the (unknown, even to them) amount of time it has left.

That means we have a classic morton’s fork. Small amendments have a higher chance of being implemented, but a lower chance of being successful in creating change. Big new policies have a higher chance of being successful if brought in, but a lower chance of actually getting the support and time to be implemented.

Crucially, part of this is in the government’s gift- they can announce concrete and significant changes to policy here and now, or they can do a budget day announcement of, for example, a new housing and planning act with bells and whistles and free homes for everyone, because what really are the odds it will get through parliament before it’s dissolved? Government must know this, so it’s not just the policies that are important, but how they are seeking to implement them.

A more cynical person than I might suggest that policies needing significant time to work through are more about setting the terrain for the next election.

What I will therefore be looking out for on budget day is changes that can be made without long lead-in times and without the need for extensive parliamentary scrutiny outside of the formal budget process. Small changes (some of which would be positive) might happen, big changes possibly won’t.

But I shan’t be losing sleep until I’ve actually seen the detail and implementation strategy that matters this year much more than ever.

One thought on “Budging the budget

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s