Theresa May, U.K. prime minister. (Photographer: Chris Ratcliffe/Bloomberg)

May's U.K. Budget Largesse Comes Too Late in the Year for Voters

(Bloomberg) -- U.K. Prime Minister Theresa May’s government delivered the kind of Budget it should have fired up five months ago -- when there was an election at stake.

Conservative lawmakers were delighted with Chancellor of the Exchequer Philip Hammond’s tax giveaway to young homebuyers, cheering as he set out his plan to “revive the home-owning dream” and promised the biggest housebuilding program in nearly five decades.

May's U.K. Budget Largesse Comes Too Late in the Year for Voters

These were policies aimed at the young aspirational voters their party has lost over Brexit. Unfortunately, the electoral damage was done back in June, when May gambled away her majority in a vote she didn’t need to call that wound up weakening her position at home and in Brussels.

“In the face of grim forecasts for the economy and public finances, the chancellor has done something very unusual: He’s delivered a pre-election giveaway Budget five months after the election has taken place,” said Torsten Bell, director of the Resolution Foundation, a London-based think tank focused on social policy and living standards.

While May’s future remains uncertain and inextricably linked to Brexit, it looks like her chancellor has won himself a reprieve from his colleagues. In the immediate run-up to the Budget, he was attacked both for his unintended gaffes and for his pessimistic approach to the divorce from the European Union.

Warm Words

When it came to the big day, influential Tory lawmakers had words of praise.

“It looks like Philip Hammond has begun to tackle some of the important challenges,” Graham Brady, chairman of the 1922 Committee, which speaks for rank-and-file lawmakers, said in an interview. “Stimulating more house-building and helping young people get onto the housing ladder and improving delivery of Universal Credit without sacrificing a credible fiscal stance.”

The last of those challenges -- fixing the delay in payments to people on welfare -- is just one example of Hammond trying to regain the political initiative after allowing the opposition Labour Party to run with a narrative that the government is uncaring.

For weeks Labour leader Jeremy Corbyn has highlighted real-life problems experienced by voters as they moved from the old welfare system to the new one. Other trouble spots to which Hammond attempted to apply a patch were the increasing numbers of rough sleepers and higher salaries for nurses.

Emergency cash for the state-funded health service -- which he refused to allocate in March when unveiling his Spring Budget -- also featured. All this was funded from the fiscal “headroom” that Hammond announced he’d found.

Wiggle Room

Hammond’s bullish, joke-heavy delivery of the Budget masked the fact that his room for maneuver is much reduced. The extra cash he set aside for a rainy day has shrunk to 14.8 billion pounds ($20 billion), from an originally estimated 26 billion pounds.

Still, Hammond at least seems to have so far avoided the troubles that came with his last Budget, when he had to reverse a key fund-raising measure a week later -- under pressure from May.

The main criticism of his fiscal blueprint so far was of the most expensive housing measure: the 3.2 billion pounds that Hammond said he’d spend over six years abolishing a sales tax on the homes for first-time buyers. The government’s spending watchdog said its effect would be to push house prices even higher and benefit current owners of property.

“It is madness,” said Labour lawmaker Alison McGovern. “Repeating the same mistakes, pushing up demand in an already over-heated market will not help those unable to buy a home.”

But Nick Faith, director of political consultancy WPI Strategy, said the tax cut could be an example of a policy that is bad economics but good politics. He compared it to Help to Buy, another policy aimed at younger voters.

“It doesn’t have huge economic credibility,” he said. “It stimulates the mortgage market but without increasing the supply of housing, and benefits those who already own. But it is politically very appealing, and one of the most popular policies in focus groups of younger people.”

©2017 Bloomberg L.P.