LONDON: Britain's Treasury chief is likely to unveil a cautious budget on Wednesday, even as good economic growth boosts tax revenue, on the idea that the country must marshal its resources as it faces the uncertainty of leaving the European Union.
Philip Hammond is set to deliver a plan for the 2017-18 fiscal year that will focus on infrastructure, schools and training. But while Prime Minister Theresa May's government has indicated it will provide an additional 500 million pounds ($609 million) for schools, analysts don't expect a big rise in net spending.
Hammond said Sunday that a recent improvement in government finances is no excuse for it to start spending big, because Britain is still 1.7 trillion pounds in debt. The latest figures show government borrowing during the 2016-17 year will probably be about 12 billion pounds less than previously forecast, IHS Global said.
"This isn't money in a pot. What is being speculated on is whether we might not have borrowed quite as much as we were forecast to borrow," Hammond told the BBC. "If your bank increases your credit card limit, I don't think you feel obliged to go out and spend every last penny of it immediately."
In the days leading up to the budget the government drops hints on its plans, and the biggest spending increase announced so far is to provide 320 million pounds more to create new "free schools," public schools that aren't controlled by local government. Another 210 million pounds will go toward renovating existing schools.
"Investing in education and skills is the single most important thing that we can do to equip our children for the future," Hammond said ahead of the budget. "These announcements take the next steps in giving parents greater choice in finding a good school for their child, whatever their background."
While economists suggest that the economic forecasts on which Hammond bases the budget will be more upbeat than the ones used for the spending update he released in November, that is a relative term.
"We doubt very much that there will be any significant change of tack by the chancellor in the budget," said Howard Archer, chief U.K. economist at IHS Global Insight. "The public finances are markedly stretched and face a long path back to health — with ample scope for marked relapses given the highly uncertain outlook facing the economy as the government negotiates the way out of the EU."
With the pound taking a beating in the aftermath of Britain's vote to leave the EU, economists are focused on the inflation forecast and how that affects living standards. Both the independent Office for Budget Responsibility and the Bank of England expect inflation to exceed the government's 2 percent target this year and next, while wages fail to keep pace.
This is especially damaging for poor people because government benefits are frozen for the next three years, meaning that inflation erodes the buying power of these payments, said Torsten Bell of the Resolution Foundation, a think tank that focuses on issues facing low- and middle-income Britons.
"The effect of a renewed pay squeeze would be broadly felt across the population, but in many ways the worst affected group might be those 'ordinary working families' on lower incomes who will face a double whammy of lower pay growth and benefit cuts," Bell wrote on the foundation's website.