- The budget will be delivered on Wednesday, March 8 at 12.30 p.m. GMT.
- Analysts are expecting a "low-key affair."
- Growth forecasts are likely to be upgraded, borrowing forecasts likely to be cut.
- Funding for schools and tech research already announced.
- NHS funding and business rates reliefs are also likely, paid for by higher taxes for the self-employed.
LONDON — Philip Hammond will deliver his first budget since becoming Chancellor on Wednesday, with analysts expecting a relatively modest affair.
Hammond will step up to the dispatch box in Parliament at 12.30 p.m. GMT (7.20 a.m. ET) on Wednesday, March 8. It is his first budget since becoming Chancellor last July but his second major fiscal statement, following last November's Autumn Statement.
The biggest headline from the Autumn Statement was a relaxing of fiscal targets, as Hammond ditched predecessor George Osborne's commitment to reach a budget surplus by 2020. This gives Hammond more financial wiggle room to deal with any Brexit-related economic headwinds.
Business Insider has combed through preview notes from UBS, JPMorgan, Morgan Stanley, Goldman Sachs, and Deutsche Bank to find out what the market is expecting from this year's budget, along with roundup any leaks that have come from the Treasury. Here are the key takeaways:
Growth up, borrowing down
"The main focus at next week’s Budget is likely to be a large upgrade to the OBR’s 2017 growth forecast," says JPMorgan's Allan Monks. He is expecting the Office for Budget Responsibility to up its GDP growth forecast for this year from 1.4% to 1.9%. Other analysts are predicting a similar rise. It follows a string of better than expected economic numbers since last June's Brexit vote and momentum since last November's Autumn Statement.
As a result of better-than-expected growth, most analysts are expecting a downgrade to borrowing forecasts and an improvement of public finances as the Treasury takes in more tax. Hammond is set to strike an "upbeat" tone on the economy as Brexit negotiations loom, according to the BBC.
The change in forecasts could free up between £10 billion and £15 billion a year for Hammond to play with, depending on which analyst you're reading.
However, most are expecting Hammond to use the bulk of this cash to boost the government's £27 billion war chest, which the Chancellor has set aside to deal with any unexpected Brexit headwinds over the next few years. He warned ministers last month that there is "no pot of money under my desk," suggesting he is unwilling to spend much.
Morgan Stanley's Jacob Neil, Melanie Baker, and team said: "Our judgment is that [Hammond] will seek to bank two-thirds of the improvement, reducing the deficit by about £10 billion per annum, to strengthen the capacity to respond to a possible Brexit slowdown – not least since growth so far has been resilient and he has another near-term opportunity to act in the autumn Budget, if required."
'Ease the squeeze'
PA/PA Wire/PA ImagesHowever, Morgan Stanley expects Hammond to spend the rest of his excess billions on "additional spending to 'ease the squeeze', softening the 2% per annum fall in real spending per capita embedded in current plans."
Deutsche Bank thinks this will mean "more NHS spending, funds for social care and possibly also a relief for small businesses against the planned increase in business rates."
Social care and NHS has become a huge issue over the last year, with both sectors facing crippling shortfalls in budgets. Some spending, even if tokenistic, on these issues would be well received. The press and businesses have also been vocal in attacking the new business rates regime.
The FT reported earlier this week that Hammond will look to fund social care spending through reform of tax for the self-employed, which could raise as much as £1 billion.
Goldman Sachs writes: "On the tax side, there is a reasonable chance the Chancellor changes the tax treatment of self-employment which currently incurs a much lower rate of national insurance contributions than employees. We believe this anomaly will eventually be addressed by HM Treasury and that may begin in this Budget."
The Institute for Fiscal Studies recently calculated that the self-employed enjoy a £1,240 tax advantage over employees, calling the current system "costly, inefficient, and unfair."
Schools, tech, and possible surprises?
Hammond's first budget isn't expected to yield many unexpected fireworks. Deutsche Bank says: "Hammond’s intention is for UK fiscal policy to become more "boring"," and JPMorgan say they expect a "low-key affair."
However, there are expected to be some headline-grabbing spending measures. The Treasury has trailed an additional £320 million in funding for new free schools in England and Wales. This total may well include funding for new grammar schools, which Theresa May has championed since becoming Prime Minister.
Hammond will also reportedly set aside £500 million in this budget to boost the UK's previously announced innovation fund. The cash will go towards electrical vehicles, robotics, and artificial intelligence, according to The Sun.
Hannah McKay/PA Wire/PA ImagesThe BBC reports that Hammond will also set up a £5 million fund to mark the centenary of female suffrage next year and announce new support for the North Sea oil industry, although it does not specify details.
Could there be any surprises? Goldman says that "incentives to encourage the early trading-in of diesel-fuelled cars may also be on the cards," given that air pollution and smog have become big issues this year, with London already breaching its annual limit.
Morgan Stanley's Baker and Neil add: "We see scope for additional funding to implement the housing white paper vision of additional housebuilding." Cabinet member Sajid Javid delivered the white paper last month.
Morgan Stanley expects the government's total spending measures will amount to a maximum of £5 billion and will be fiscally neutral, i.e. totally funded by improved public finances rather than borrowing.
Goldman writes: "We do not expect the Budget to be a major macro or fiscal event... there may be more news from the Budget at a sector level in terms of both tax and public spending announcements, although here too our expectations are modest."
Hammond signalled at the last Autumn Statement that he is scrapping the tradition of twice-a-year financial updates, instead moving the full budget to autumn and making it the only annual update. As a result, this spring budget is something of a stop-gap.
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