Hammond could and should have ended his crippling freeze on benefits | Business

Low-income families will be hit hard in April by government spending cuts and tax rises. Philip Hammond might have considered the double whammy that awaits them when he stood up last week to deliver his spring statement. There was an expectation, especially among some anti-poverty charities, that the chancellor would open his wallet to ease their financial pain following his promise last year to end austerity.

Families in the bottom fifth of earners will lose, on average, £400 a year from a freeze on benefits. Universal credit will be cut for all but the lowest-income households, and council tax bills, which affect the poorest much more than those in higher income brackets, are set to rise by an average of 4.5%.

The chancellor was told by the Office for Budget Responsibility (OBR), the Treasury’s independent forecaster, that he was enjoying bumper tax receipts and lower interest payments on the government’s near-£2 trillion of debt.

In addition, the OBR said it was expecting these trends to continue for several years, boosting government’s spending power as it heads towards the end of the decade.

Sadly, there was no mention of improving welfare payments in the spring statement. In fact, the chancellor spent very little of the £30bn windfall given to him by a set of surprisingly generous OBR forecasts. And when he did talk briefly about his priorities for the future – ones that he will consider in the summer as part of a comprehensive spending review – he said he would only spend extra funds on public services, infrastructure projects, tax cuts or paying down the national debt.

In the words of the Institute for Fiscal Studies (IFS), the tax and spending thinktank, he banked most of the money for the purposes of the spring statement, and before considering his options told the OBR he would use most of it to reduce the annual deficit.

Inside the Treasury, senior civil servants must have breathed a sigh of relief. Not because they are unaware of the pressures on the state, but because they know how forecasts produced by the OBR are built on sand. The figures assume a smooth Brexit, among other things, which might happen on 29 March as billed, but increasingly looks like happening at a later date, if at all.

It’s been the same for the past two years. The forecasting game is something everyone must go along with, even though they know there is an even stronger probability than usual that predictions for GDP growth, tax receipts and government spending will be wrong.

As it happens, the OBR has proved to be closer to the mark in the past two years than in previous periods, mainly because it has dropped overly optimistic predictions of productivity growth. But still, looking forward, the forecasts will almost certainly be at variance with the actual outcomes. Robert Chote, the OBR’s chairman, said as much at his press conference following the spring statement.

The IFS’s boss, Paul Johnson, adopted the same stance as Treasury officials when he said that it was best for Hammond to keep its powder dry until the Brexit dust had settled: only then would the chancellor have a clearer idea of how much money is available to spend. But the trouble with that argument is that Brexit is proving to be an increasingly long and winding road.

In the meantime, Hammond knows he has the £1.8bn he needs to end his four-year freeze on welfare benefits now. He could also begin to replenish the budgets of local authorities and unprotected Whitehall departments, which are about to suffer yet another round of debilitating cuts.

Thameslink fine is closest we’re going to get a real punishment

Few stood to applaud the rail regulator last week when it slapped a £5m fine on Govia Thameslink Railway for its failure to tell passengers what was – or more usually, wasn’t – going on during the timetable fiasco last May. That £5m is about equal to the company’s ticket revenue for a good weekday.

Beyond GTR’s grand fiasco of failing to run thousands of promised services, the Office of Rail and Road was particularly peeved that the operator did not manage to produce accurate information about cancelled services. It even sometimes omitted to tell passengers when a Thameslink train did turn up, leading to these services being dubbed “ghost trains” – but not the fun kind.

Given that GTR clings on to a huge commuter franchise – incorporating Southern and Great Northern as well as Thameslink – whose relatively short history has been marked by inglorious failure, it is understandable that some denounced the fine as a slap on the wrist.

Yet GTR can point to another £15m in remedy payments agreed with the Department for Transport, which it says has already wiped out profit for this year. Margins are slim in rail: GTR’s previous full-year profits were of a similar size to the fine. On that measure, the penalty is not insignificant. With another timetable overhaul in two months’ time, commuters will hope that the fine can at least focus minds.

Ultimately, though, accountability is not rail’s strong point, whether in the massive overspends that left Network Rail’s infrastructure upgrade plans in tatters, or in humdrum daily questions such as why a commuter’s crowded and overpriced train is delayed or cancelled. When even transport secretary Chris Grayling can decline all responsibility for the industry – while haemorrhaging millions in bungled contracts – GTR’s fine is perhaps as close as it gets to a fair cop.

Accountancy watchdog will need sharp teeth

First it was Carillion – now it’s Interserve. The collapse of the two government outsourcers little more than a year apart has put the debate over corporate governance in Britain back on the agenda – with reform of the audit industry front and centre.

The audit departments of big accountancy firms are supposed to be the modern-day City equivalent of the canary in the coal mine – assessing firms’ resilience, checking the accuracy of their accounts, and providing early warnings.

The problem is that since long before Carillion failed, the system has not been working. Repeated scandals, particularly in banking, showed the problems were not isolated cases of bad management.

The accountancy regulator – the Financial Reporting Council (FRC) – appeared to be either underpowered or asleep at the wheel.

In a seemingly happy coincidence for the government, ministers announced last week, just days before Interserve filed for administration, that the FRC was to be abolished. It will be replaced with the Audit, Reporting and Governance Authority (Arga), a statutory body, with some new powers. The FRC chair, Win Bischoff, will resign as soon as a replacement is found. Its former chief executive, Stephen Haddrill, resigned last November.

None of these changes, however, go as far as an idea floated by Labour to make the big four accounting firms split their audit departments from their accountancy practices. Audit work is often used as a loss-leader to win profitable consulting and accounting business. The idea is that separating these drives up quality, while removing potential conflicts of interest.

Arga will be given time to show it has changed in more than just name, but it does not have much room for manoeuvre. Repeated failures mean there will be intense pressure on the watchdog to bare its teeth. Should it fail to act when the next failure comes, support will inevitably grow for Labour’s more radical option.

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