Britain faces pre-Brexit budget battle

Philip Hammond. (AFP File Photo)

Britain's finance minister will try to navigate a political minefield on Monday when he unveils a budget that could be scuppered by the final terms of Brexit next year.

Philip Hammond's appearance in parliament was moved forward a month to give lawmakers a chance to consider it quickly and then focus on legislation needed to get Britain safely out of the European Union in March.

London and Brussels remain locked in negotiations and it is still uncertain whether Prime Minister Theresa May can get an eventual deal with the EU backed by lawmakers.

The spending plan that emerges from Hammond's red briefcase will be studied warily by May's ruling coalition partners from Northern Ireland's Democratic Unionist Party.

The small group is a kingmaker that could yet sink both the draft agreement with Brussels and May's government in protest over the emerging outlines of a Brexit deal.

This level of uncertainty forced Hammond to admit Sunday that "frankly, we'd need to have a new budget that sets out a different strategy" should negotiations fail to salvage an agreement between all sides.

He also pledged to keep "fiscal buffers" in place to handle any scenario.

But Hammond argues that a workable solution is both possible and likely to bring a "Brexit dividend" that gives a boost to lagging economic growth.

"Of course we can never know until we have actually done the deal, but everything tells me that it is very much in the interest not only of the UK but also of the EU," he told the BBC on Sunday.

"Everything I hear tells me that the 27 member states want a deal done with the UK." 

Hammond's hand is boosted by Britain's resilient economic health.

Growth rates have slowed since the 2016 referendum but the 2018-19 fiscal year deficit could come in under the projected 1.8 percent of GDP.

Britain is reaping the rewards of a strict diet of austerity measures that curbed spending and raised taxes in the wake of the 2008-09 financial crisis.

Many of these policies already underpin the budget and do not have to be explicitly announced on Monday.

This leaves Hammond free to work in line with May's announcement at her annual party conference this month that the era of austerity was over and the "hard work has paid off".

He has already announced £900 million ($1.2 million, 1.0 billion euros) in relief for the yearly fees small store owners pay on their retail space.

Billions more are being earmarked for roads and mental health funding.

But Hammond has also hinted that some taxes could still rise in the future.

The only one he has backed publicly is one on the UK revenues of online retailers and giant technology firms such as Google and Facebook.

Hammond is bound by his government's contradictory commitments to achieve a balanced budget by the mid-2020s while gradually increasing spending for popular social programmes.

He said Sunday that he was choosing "a balanced approach which places an equal weight on getting the debt down, keeping taxes low, supporting public services, and investing" in infrastructure development.

The extra funding would help undercut May's Conservative Party rivals in Labour ahead of elections that are to take place no later than 2022.

Yet researchers at London's Institute for Fiscal Studies said the best Hammond could do politically was postpone the announcement of unpopular measures until a future date.

"There's no way Hammond can end austerity and balance the books," the think-tank said.

"It might prove to be pain delayed rather than pain avoided."

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Britain faces pre-Brexit budget battle

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