Hammond Spends His U.K. Budget Windfall Buying Votes for May

(Bloomberg) -- Government forecasters handed Philip Hammond a large bag of cash last month. He decided to spend it buying votes for Theresa May.

In the very short term, the U.K. Chancellor of the Exchequer was winning lawmakers’ support to get his budget through, after Brexiteers in the Conservative Party and its Northern Ireland allies had talked about using it to protest the prime minister’s strategy for leaving the European Union.

They will find that harder now, while Hammond will also be hoping to have got their backing for whatever deal May brings back from Brussels.

Yet there are two other possible votes -- on unknown timescales -- looming over the government: A Tory challenge to May’s leadership, and a snap election. In both cases, the chancellor will have hoped his decision to spend every pound available on voter-friendly measures will be good for his boss.

“He was set up with a difficult task,” said Gemma Tetlow, chief economist at the Institute for Government. “The thing that came to his rescue was the improved borrowing forecast.”

Windfall

That forecast came from the Office of Budget Responsibility, which said the government would borrow less this year than forecast and delivered its largest upward revision of cumulative economic growth in five years. This allowed Hammond to commit to what the OBR called “the largest discretionary fiscal loosening at any fiscal event” since at least 2010.

The chancellor learned he was getting a windfall on Sept. 21, the day after May was humiliated at an EU summit in Salzburg, Austria. Hammond had been one of those blamed for a previous debacle -- her surprise drubbing in the 2017 election -- because the budget he’d delivered three months earlier had offered little to win voters.

Now, with her Brexit strategy apparently in tatters, the chancellor had a possible way to rescue her.

Election

Hammond told ITV television on Tuesday he hoped there wouldn’t be another election, though Labour’s opposition Shadow Finance Minister John McDonnell said he thought the government could be planning one. “What we say is ‘bring it on,”’ he told Bloomberg TV.

May later insisted she wasn’t.

“No, we’re not preparing for another general election,” she told reporters in Oslo, where she was attending a summit. “That would not be in the national interest.”

Most of the money that the OBR gave Hammond went on the National Health Service, a move that ticks a series of political boxes. First, the NHS is the government service that voters most value, and more money means shorter waiting lists and fewer canceled operations. It should also take the sting out of some of the opposition Labour Party attacks on what has always been a vulnerable area for the Tories.

Giveaways

But significantly, it delivers on the promise -- implied during the 2016 Brexit referendum -- that there would be more money for the service after Britain leaves the EU. From 2022, there will indeed be an extra 350 million pounds a week -- and more -- for the NHS, a number plastered along the side of the pro-Brexit campaign bus. It will be very hard for Brexiteers to object.

The budget offered a series of other giveaways to appease various groups. Personal tax cuts were brought forward, there was a little extra money for schools, and also cash to help fix potholes -- the sort of thing, Hammond noted, that really upset the public. The losers from the budget were gambling companies and Internet giants such as Google and Facebook. Few among the public will shed many tears for them.

It was billed by Hammond as the “end of austerity.” Treasury officials afterward declined to give a meaningful definition to that, but if nothing else it could help to deflect Labour attacks.

The giveaway nature of the budget didn’t escape lawmakers. At a closed-doors meeting with Tories on Monday evening, Hammond was asked if this was a pre-election Budget. He dodged the question.

Preparing

Whatever May and Hammond say, the timing of an election isn’t entirely in their control. If one comes in the next six months, it will be because EU talks have fallen apart, and that’s not the plan. But at least if there is a surprise election, Hammond will be able to say he has played his part in preparing the Conservatives for it.

Hammond says he’s confident May will get a Brexit agreement, and predicts lawmakers will vote it through Parliament. Speaking to BBC Radio 4 on Tuesday, he again warned a no-deal Brexit would be a shock to the economy and could require an injection of spending in the short term.

Hammond has put more than 15 billion pounds in a Brexit rainy-day fund that he plans to spend after Brexit, either helping to rescue the economy in the event of no deal, or on helping to end austerity if there is one.

“Very often a shock to the economy actually requires a boost to spending in the short-term to support demand and to keep the economy going,” Hammond told BBC radio.

Unconcerned

Many voters aren’t concerned. A snap poll of 499 people last night revealed 31 percent of people think a no-deal Brexit won’t reduce money available for public services, with another 21 percent seeing it as a price worth paying if it did. That compares with 48 percent who worry that crashing out of the bloc would lower public spending and see that as too high a cost to do so, according to the survey by Hanbury Strategy.

Coming out of their meeting on Monday evening, Tory lawmakers expressed delight at the budget. Few of May’s Brexit opponents are likely to change their mind because of the Hammond’s statement, but equally, it won’t have pushed anyone to call for her to be thrown overboard.

Pro-Brexit Tories who’d threatened to rebel against the government on the budget gave no indication they would now do so -- at least when it comes to the vote on Thursday. That’s crucial for May, because EU negotiators have been waiting to see if she can get her budget through the House of Commons before resuming Brexit negotiations.

“Everyone is in a happy place, for now” said one Conservative lawmaker. “Give it 24 hours!”

--With assistance from Alex Morales.

To contact the reporters on this story: Robert Hutton in London at rhutton1@bloomberg.net;Jessica Shankleman in London at jshankleman@bloomberg.net;Kitty Donaldson in London at kdonaldson1@bloomberg.net

To contact the editors responsible for this story: Flavia Krause-Jackson at fjackson@bloomberg.net, Stuart Biggs

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