A very political budget

'Fiscal Phil's' budget was very political and the main target was the benches behind him (I don't buy into the argument that it signals an early general election, the Conservatives aren't going to risk that again). He has enhanced his reputation with the benches behind him and given Mrs May some more breathing space.

It could all still go pear shaped if there is no Brexit agreement, but I still think it is more likely than not that there will be a fudge that will scrape through the Commons, leaving all the difficult issues to be negotiated during the transition period/implementation phase.

What was important was what was not in the budget: no changes to tax allowances on pensions, which cost a lot of money, but would hit Conservative stalwarts hard. Not only were the income tax allowances not frozen, they will be brought forward. Higher rate taxpayers will gain most, but you don't have to be in a top job or earning huge sums to be one of those. Domestic air duty was frozen, as was the duty on beer, cider and spirits, but not wine, drawing a shout of 'Oh no!' from behind the Chancellor.

Public spending is to increase, but not just yet. One billion pounds is going to defence which will please Conservative backbenchers. The £400m for schools will mean £10,000 for the typical primary school and will not help to save a single teaching assistant. It was also delivered with a patronising reference to 'little extras' which has not gone down well with the teaching profession. It should be paid for by the new digital services tax if it manages to raise £400m.

Getting multinationals to pay their fair share of tax has always been a challenge, but even more so now they are not moving goods around in many cases. What is required is international cooperation to deal with tax havens, but that is looking less rather than more likely.

The difficult decisions about where to increase public expenditure and how to pay for it will be deferred until the comprehensive spending review post Brexit. That makes sense, but it doesn't help local authorities teetering on the edge of bankruptcy or the stretched police and prison services. The £700m extra for social care, although welcome, addresses only part of the problem that local government faces.

The corny jokes by the Chancellor diverted attention from the seriousness of the situation: something, but not enough, has been done about Universal Credit which is being used to cut entitlements, particularly it would seem for the disabled and single parents. But there were no apparent gaffes and the antics of feisty Liz Truss provided another amusing diversion.

Are there really green shoots?

Philip Hammond adopted an upbeat note in his spring statement yesterday, but is the news really that good? What concerned me is that the forecast growth rate is around the 1.5 per cent level when historically I would have expected 2 to 2.5 per cent in the UK. We do not know what the Brexit settlement will be and how it will impact on the economy and there are wild variations in the forecasts of the GDP effects, but I would expect growth to be lower than otherwise would have been the case.

Paul Johnson of the Institute for Fiscal Studies tweeted, 'Growth standards dreadful compared with what we thought in March 2016, dreadful by historical standards and dreadful compared with most of the rest of the world.'

The Chancellor is going to have find more money for health and social care in the autumn budget. Local authorities have experienced a 49 per cent cut in real terms and an increasing number are in a situation where they are going to only be able to provide statutory services. However, the forecast reduction in the budget deficit is less than some analysts had been anticipating.

The Treasury dislikes hypothecated taxes, but is there a case for an increase in income tax to be devoted to health and social care? As someone who already pays a five figure sum in income tax each year, I would accept that.

Ten years after the financial crisis people have seen their standard of living stagnate or decline and public services under pressure. Ultimately, as Bagheot pointed out in The Economist this week, this undermines trust in democracy.

Are economic fundamentals strong?

The Chancellor's article in The Times on Wednesday has attracted criticism from Brexiteers, some of whom have argued that he should be sacked (his remarks before the Commons Treasury committee seem to have caused particular offence). I am more interested in his claim that 'the fundamentals of economy are strong'.

We have now had a decade of weak productivity growth which constrains possibilities for increases in real wages. Initially, this could be blamed on labour hoarding after the GFC or impairments in the banking system, but these arguments no longer apply. Indeed, the Office for Budget Responsibility is likely to cut its predictions for productivity growth, posing challenges for the Chancellor's budget judgment: Forecast Evaluation Report

Even economists cannot agree about why productivity performance is so poor. One explanation has been weak business investment since the GFC. Low interest rates have meant that there has been a limited 'shake out' effect of weaker companies, so one does not see the kind of 'batting average' effect on productivity one saw during the Thatcher years.

It may also be the case that it can be more challenging to secure productivity gains in a service oriented economy, although I appreciate that that is a more contentious claim.

It could also be argued that downward pressure on wages and an emphasis on labour flexibility has reinforced low productivity ways of working and attracted relatively unskilled migrant workers. However, it may not be possible to substitute capital for labour in many of the activities they undertake. What is clear is that the answer to the productivity problem is not to be found in further tinkering with the labour market.

If one wants further evidence, the IMF has singled out the UK as a 'notable exception' to an improving global economic outlook, arguing that the negative effects of Brexit are beginning to show. In its twice yearly Economic Outlook, the IMF reduced its UK long-term growth outlook from 1.9 per cent to 1.7 per cent (the long-term trend is in the region of two per cent).

The designated adult?

Philip Hammond is suddenly the flavour of the weekend as a possible successor to Theresa May. First, The Economist Bagehot column ran a favourable portrayal under the title 'The Designated Adult' and today the Sunday Times is running with a story that he could be an 'interim' prime minister for two years with David Davis as deputy prime minister.

Bagheot argues that 'spreadsheet Phil' is a 'serious man for serious times'. No one doubts that he is serious: he reminds me of an old style bank manager who tells you can't have a loan for your business. Bagehot admits that he is 'emotionally buttoned up', but argues that he is a smarter version of Mrs May. Is this what is needed?

One British politics expert makes a good point when he tweeted, 'He has the same dull qualities as John Major. This could be a benefit in interesting times.'

The underlying problem is that the Conservatives don't have a suitable successor. Bozza, or at least his people, gave offence by going out 'on manoeuvres' immediately after the election. Admittedly, if he reached the last two, the activists would probably vote him in.

David Davis is a strong Brexiteer and has been a contrarian over the years. Amber Rudd would have a chance if she didn't have a wafer thin majority. People are then reduced to looking at the likes of Priti Patel!

What may happen is that Theresa May stays longer than anticipated. The plan is to have a long recess with Parliament not meeting again until October which would rule out the election then that so many believe in.

Not a game changer

Valencia: Reuters rang me up yesterday evening to ask for comment on Liam Fox's resignation. My view was and is that it is not a game changer for the Coalition Government.

It is clearly an embarrassing episode, but Dave has handled it as well as he could in the circumstances. It is not indicative of the kind of sleaze which haunted the last years of the Major Government. Indeed, these days to get away with two Cabinet resignations in eighteen months is not bad going given the rapacity of the media pack.

Of course, one potential future problem is that Dr Fox could act as a focus on the backbenches for discontented right-wingers.

The Government would also have preferred stability in the defence ministry given that it has been critical of the turnover of ministers there under Labour. This made it more difficult to get a grip on the cost effectiveness of defence spending.

Phillip Hammond has been an effective transport minister, facing down opposition to the high speed train proposal. He is also on the right of the party so the balance of the Cabinet has not been changed. His replacement, Justine Greening, is also a rising talent.

So there has been some reputational damage, but it is relatively limited, certainly in terms of any lasting effect.

Who is to blame for the weather?

It is sometimes said that British voters expect American levels of taxation and Scandinavian levels of public service. Now transport secretary Phillip Hammond, who wasn't able to take the job he prepared for as chief secretary of the treasurer, is getting blamed for the bad weather. As Rachel on Radio 5 commented this morning, he can hardly ring up God and ask him to change it.

More seriously, he is getting blamed for the failure to prepare for the bad weather. People ask why, say, Zurich or Stockholm airports are able to keep open in similar weather. It's because they can expect such weather two or three months of the year and can invest in expensive capital equipment to deal with it.

Sensibly enough, Mr Hammond has asked the chief scientist to give a view on whether the bad weather of the last three winters represents a change in the pattern. This is not an easy thing to give a view on as climate and weather are affected by so many variables. We could easily have a mild winter next year and then any new equipment could stand idle.

If we do invest more in winter transport infrastructure, it will have to come from cuts elsewhere in the depleted transport budget.

What I would argue is that some public transport services give up too easily. I live on an A road and there is a bus service in the day time every eight minutes or so. Within an hour or so of the snow starting to fall yesterday, the bus service was withdrawn.

The road was still open, albeit that traffic was having to move more slowly than usual. It would not have been possible to operate the normal timetable. But would it have been possble to improvise a reduced skeleton service? One would think so. But at the first sign of bad weather the service is withdrawn, no doubt on health and safety grounds.