The chancellor’s assertion in last year’s Budget that Theresa May’s Brexit agreement would bring about a “deal dividend” for the UK was “not credible”, the Treasury Select Committee has said.
Presenting the Budget in November 2018, chancellor Philip Hammond said the government would deliver a “double deal dividend" if it signed a withdrawal agreement with the EU: “a boost from the end of uncertainty; and a boost from releasing some of the fiscal headroom I am holding in reserve”.
But in a report published today, the committee dismissed the claim on the basis that the Office for Budget Responsibility’s economic forecasts had always assumed the UK would leave the EU with a deal.
The MPs noted that the OBR had called Hammond’s description of the so-called dividend “odd”, and said that rather than a boost, what Hammond was describing was simply “avoiding something really very bad”.
Because of this, “no 'deal dividend’ over and above the existing forecast could be attained simply by avoiding a disorderly, or no-deal, outcome”, the committee’s report said.
Any improvement to business confidence or investment resulting from a deal could not credibly be called a dividend, it added.
The report also questioned the chancellor’s claim in the Budget that he was bringing austerity to an end. The MPs urged Hammond to clarify what he meant, as the claim has been widely disputed.
The claim was first made by prime minister Theresa May at last year’s Tory Party conference, when she said spending on public services would increase at the next Spending Review. However, neither May nor Hammond have set out what they expect this to look like.
“Claims by the chancellor that austerity is coming to an end are expansive and imprecise. He should set out what he means in more measurable terms, especially as he will face more difficult choices at future budgets for how to fund such a pledge,” committee chair Nicky Morgan said.
The report was published a day after the Institute for Fiscal Studies said that to fulfill this pledge, Hammond would need to allocate billions more pounds to government departments in the upcoming Spending Review.
Spending plans set out in the Budget represented real-term cuts to public services outside health, defence and overseas aid, the report noted, as CSW reported last year.
After the Budget last year, the IFS said a “minimal definition” of ending austerity would require an additional £19bn in spending in 2022-3. In yesterday’s report, it added that avoiding any cut to real terms per capita spending on unprotected services would require an additional £5bn in the same timeframe.
'A compressed timetable'
Elsewhere in the Treasury Committee’s report, the MPs rapped the Treasury for failing to stick to the timetable it had agreed with the OBR at the beginning of the forecasting process, which meant economic and fiscal forecasts were “not fully consistent”.
Hammond told the committee that his announcement of the Budget statement just over a month before it was due to take place meant it was being delivered on a “compressed timetable”.
“As the 2019 Spring Statement may be the first opportunity that the OBR has to make a more detailed assessment of the UK’s short-term prospects post-Brexit, it will be even more important than usual that the government provides the OBR with the resources and information that it needs in a timely fashion,” the MPs said.
The committee also urged the Treasury to adopt its previous recommendations to use data from HM Revenue and Customs and the Office for National Statistics to produce and publish equalities impact assessments of future budgets.
It said that although improvements were made in the last Budget, the equalities and gender impact assessments that were produced fell “well short of being robust”.
The next Budget should include quantitative analysis of the equalities impact of individual tax and welfare measures “in all cases where data are available”, it urged.
And the report also included some recommendations on the Treasury's future fiscal strategy and mandate. It said Hammond appeared to have "disregarded" his fiscal goal of achieving a budget surplus by the next parliament, given his award of extra funding for the NHS.
"It is clear that the fiscal objective now has no credibility, so it cannot be used by parliament to hold government to account. It should be replaced before the next Budget with something that accurately reflect government policy and priorities, which clearly do no include running a budget surplus," it said.