Conservative MPs have rallied round Philip Hammond despite his Budget being overshadowed by gloomy assessments of the UK’s future growth prospects.
The UK economy is forecast to expand by an average of just 1.4% a year by 2022 due to uncertainty over Brexit and sluggish productivity levels.
Labour say the projections, the weakest for decades, risk prolonging austerity and extending the squeeze on families.
But leading Tories said the chancellor had maintained his fiscal credibility.
The BBC’s political editor Laura Kuenssberg said while the economic reality was a country that could be “poorer for longer”, Mr Hammond may have overcome the short-term political challenge of delivering a controversy-free Budget that could bring “a period of peace” to his party after months of upheaval.
The chancellor, who was under pressure from sections of his party in the run-up to Wednesday’s speech, has won praise from Tory backbenchers for his decision to scrap stamp duty for the majority of first-time buyers and to set aside £3bn for preparations for the UK to leave the EU.
MPs privately told the BBC it was “very solid” and had been “well received” while one said it contained “nothing too dangerous” and would pass intact.
While conceding the economic downgrades were “significant”, Nicky Morgan – chair of the Treasury select committee – said he had “taken a common-sense approach” and “balanced fiscal credibility with demands for spending on multiple fronts”.
Leading Brexit supporter John Redwood said the Budget was full of “good proposals”, including the help for first-time buyers.
But opposition parties have said the measures go only a small way to addressing the housing crisis in the country, while an extra £2.8bn for the NHS in England up to 2022 over three years is insufficient.
Labour has said the Budget laid bare the Conservatives “record of failure” and predicted that it was set to “unravel” in the coming days.
What does this mean for families?
The poor outlook for the economy will put an extra strain on the public finances and will impact negatively on family finances, leading economists are warning.
The Resolution Foundation says disposable incomes are now expected to be £540 lower by 2023 than forecast in March, largely as a result of weaker pay growth.
Average pay is not set to return to its 2008 peak until the middle of the next decade, it has said.
And the Institute for Fiscal Studies, which will give its eagerly-anticipated verdict on the Budget on Thursday, says it is highly unlikely Mr Hammond will meet his target of balancing the books by the mid 2020s.
“To get there we would have to have another round of spending cuts,” he told the BBC. “Given how hard it has been to get where we are, I think that is going to be pretty tough.”
How bad is the economic picture?
The chancellor said the economy continued to “confound those who seek to talk it down” by creating jobs and continuing to grow.
But the independent Office for Budget Responsibility soon signalled that it was less optimistic about the future, slashing its 2017 growth forecast from 2% to 1.5%.
Output, it added, would be weaker than previously thought in each of the subsequent four years.
It warned that public spending cuts and Brexit-related uncertainty would “weigh on the economy” while the “remarkable” struggle that the UK economy has endured in bouncing back from the 2008 financial crisis, in terms of lost productivity, would also have major dampening effect.
To put the figures into perspective, while there have been three recessions since the early 1980s there has not been a period since then when growth has been forecast to dip below 2% for more than three years in a row.
Asked if the UK should get used to below 2% growth in the long-term, Treasury minister Liz Truss told BBC “we should not expect mediocrity and we have got to get better”.
Will the stamp duty holiday prove a game-changer?
Mr Hammond’s “rabbit out of the hat” moment was his pledge to scrap stamp duty for first time buyers purchasing homes worth up to £300,000.
He said the change, which would also see those buying properties worth up to £500,000 paying no tax on the first £300,000, will benefit 95% of first-time buyers.
But in its assessment, the Office for Budget Responsibility said the main gainers would be those who already own a home.
It also said the cut, which will initially only apply in England, Wales and Northern Ireland, would push house prices up by 0.3% and predicted it would only lead to an extra 3,500 first-time buyer purchases.
But Treasury minister Liz Truss said 0.3% was a “minor increase” and the main beneficiaries would be those struggling to get on the housing ladder.
What were the other key announcements?
- Freezing alcohol duty apart from an increase in duty on high-strength white ciders
- The price of 20 cigarettes goes up by 28p and by 41p for 30g of rolling tobacco
- A promise to fund a pay rise for nurses if one is recommended by an independent panel
- A one-off tax on new diesel cars that do not meet latest emissions standards
- £28m for Kensington and Chelsea council for counselling and regeneration after Grenfell Tower fire
- Bringing forward a planned cut in business rate rises by two years to 2018
- Support for electric cars including a £400m charging infrastructure fund
- A new railcard offering discounts to those aged between 26 and 30
- Changes to universal credit to bring the overall waiting time down from six weeks to five.
What are the pundits saying?
The Daily Mail welcomed Mr Hammond’s “Brexit optimism” and his help for young people.
But The Guardian said the chancellor could not hide from the economic reality.
A point also taken up in the Financial Times.