What to Expect From Britain's Pre-Brexit Budget 2017

Philip Hammond
Britain's Chancellor of the Exchequer Philip Hammond leaves 11 Downing Street, London, November 23, 2016. His budget is facing a backlash. Peter Nicholls/Reuters

British Chancellor Philip Hammond will stand up in the House of Commons Wednesday afternoon to deliver the annual budget statement.

Usually one of the focal points of the political year, 2017's budget will be overshadowed somewhat by the oncoming Brexit negotiations. Set against the existential questions that such a process involves, quibbling over a few billion here or there to spend on hospitals can seem unexciting.

But nonetheless, the event is important, and is a test for the chancellor, still fairly new in the job after his appointment late last summer.

Here are four things to watch for.

Blue skies ahead...

In his Autumn Statement, November's end-of-year budget update, Hammond struck a cautious note over Brexit.

The chancellor is thought to be one of the more pro-European figures in the cabinet, and he delivered a statement he described as "sober." While he insisted the British economy was strong, he said the turmoil the referendum unleashed "makes more urgent than ever the need to tackle our economy's long-term weaknesses."

This time around, things will be different, we're told. According to Treasury sources, he will give an " upbeat assessment of the future of the British economy," with a vision for a "stronger, fairer, better Britain, outside the EU."

...but we're still fixing the roof

Hammond's predecessor George Osborne had a favorite soundbite to describe the tight-fisted austerity tax and spend strategy he set in motion. The government, he would say, was "fixing the roof while the sun is shining."

Now Hammond is unlikely to depart from this austere agenda. According to reports in British media, he will deliver a fiscally-neutral budget, with any increased spending offset by tax hikes. This would mean resisting the temptation to use the extra leeway he has been granted thanks to the economy's unexpectedly strong post-Brexit performance.

The influential nonpartisan Institute for Fiscal Studies (IFS) think tank predicted in a report published February that austerity spending cuts and tax rises would continue "well into the 2020s."

Extreme fiscal caution proved a winning strategy for Hammond's predecessor, with his Conservative party increasing its vote share at the 2015 general election.

But with Britain now approaching its seventh year of squeezes, real-world impacts are being experienced across all levels of society, not just by those at the bottom who have been feeling the pinch from the outset.

Recently, for example, the official policing watchdog has warned Britain's forces are in a "potentially perilous state" as a result of cuts. The Local Government Association claimed the entire social care system stands "on the "brink of collapse."

What will Labour say?

The Labour party, as the official opposition, has the task of responding to the budget. This has sometimes been a chaotic affair, with the unpolished hard-left shadow chancellor, John McDonnell, even going so far as to quote Mao Zedong at an astonished George Osborne in one session.

But this year, the test is especially important. The party is tanking in the polls, trailing around 15 points behind the government. Its woes are partly driven by Brexit, where it is outflanked both by the pro-Brexit Tories and UKIP, and the anti-Brexit Lib Dems.

Central to the argument for the controversial leadership of Jeremy Corbyn is that a "left-wing populism" driven by opposition to cuts and the rich can deliver the party victory.

Today, McDonnell will get a chance to speak uninterrupted about the government's stewardship of the economy. Will he take advantage of it? The early signs aren't ideal, with some promotional material for the party written apparently under the impression that Osborne is still in place.

Do...Do they know Osborne isn't chancellor anymore. Can anyone go have a quiet word. pic.twitter.com/DQpObVKIHL

— Marie Le Conte (@youngvulgarian) March 7, 2017

Some tinkering at the edges

It will be a political test for Hammond over how he allocates the small amounts of cash he may spend.

The social care sector would be one target, which has been a constant source of negative stories for the government in recent weeks. Local councils with responsibility for social care are facing a funding gap of £2.6 billion ($3.2 billion) by 2020.

Changes to the "business rates" tax paid by businesses which some have said will harm small companies (including beloved fish and chip shops, pubs, and other staples of media attention) could get some attention; Hammond is expected to announce some help for those worst hit.

And he's also marking International Women's Day by supporting centenary projects celebrating the 1918 Representation of the People Act that first gave women the vote.

But Osborne always had a "rabbit" to pull out of his hat—an unexpected measure announced on the day to delight journalists and other Westminster observers. A much more unflashy character, Hammond hasn't previously gone in for such games.