Brexit gets £3bn top-up but skulks unflagged in Hammond budget

Chancellor assures cabinet of resolve to feed more cash to EU exit when need arises, but ‘divorce bill’ remains unconfirmed

The impact of Brexit was everywhere to be seen in Wednesday’s budget, but nowhere to be found in most of the chancellor’s speech. Philip Hammond’s only direct reference to the most seismic economic event in Britain’s postwar history was to confirm he would have to put aside extra money to prepare government departments for the worst-case scenario of a “no deal” exit.

“We are determined to ensure that the country is prepared for every possible outcome. We have already invested almost £700m in Brexit preparations. Today I am setting aside over the next two years another £3bn. And I stand ready to allocate further sums if and when needed,” he said.

“No one should doubt our resolve!” added Hammond, in words aimed at his Brexiter critics in the cabinet who have been lobbying hard for more to be spent sooner – readying customs infrastructure as way of strengthening Britain’s negotiating hand.

But the fine print in the Treasury red book has made clear that Hammond is sticking to his determination only to release the funds when it is clear they will be needed. Departments will have to wait until early 2018 to find out if they will get any of the new money, and still longer for the rest, which will only come “when there is more certainty on the status of our future relationship with the EU”.

Hammond’s reticence to spend money preparing for a scenario he is desperate to avoid reflects the broader strictures imposed on public finances by leaving the European Union.

The biggest unspoken liability is the imminent divorce settlement that the prime minister, Theresa May, is said to have agreed at a cabinet subcommittee on Monday as way of unlocking stalled Brexit talks.

By delaying confirmation until after the budget, the government ensures that forensic scrutiny of any verbal commitment is once again postponed. One day soon a rumoured £40bn or more will be added to the £700m government has already spent on Brexit.

Arguably this is just the tip of the iceberg however. The biggest shock of this year’s budget is the dramatic downscaling of Britain’s future growth projections by the Office for Budget Responsibility (OBR).

“The big news is a whopping downgrade to prospects for long-term growth,” said Ian Stewart, chief economist at Deloitte. “The OBR’s view that weak productivity is here to stay, and is not just a lingering hangover from the financial crisis, means a longer haul to eliminate the deficit and slower wage growth.”

The gloomy new outlook suggests no one really knows how bad Brexit could be but earlier assumptions are adhered to – that Brexit will at least “slow the pace of import and export growth over the 10 years following the referendum”, stoke inflation, deter investment and reduce the size of Britain’s workforce.

If there is no deal at all things could be worse still, although there is no indication whether this is a factor in the OBR’s overall pessimism. “Given the uncertainty regarding how the government will respond to the choices and trade-offs it faces during the negotiations, we still have no meaningful basis on which to form a judgment as to their final outcome and upon which we can then condition our forecast,” concluded the independent economists.

For campaigners against a hard Brexit, the lesson is clear. Eloise Todd, of Best for Britain, said: “Philip Hammond has delivered his budget, but at its heart is a Brexit black hole which will not only leave our NHS and care services in crisis but ordinary households will be clobbered, leaving them much worse off. We are seeing the reality of Brexit: slower growth, higher borrowing, falling tax receipts and soaring inflation. Unless Britain changes course we are all going to be much, much, poorer.”

For the chancellor, Brexit is a headwind at best; but at worst it is a gale that could blow all his other plans aside. “One of the biggest boosts we can provide to businesses and families, one of the best ways to protect British jobs and prosperity as we build that new future, is to make early progress [toward a deal],” he concluded in his speech.