Last-minute Autumn Budget predictions

We've talked a lot about so-called JAMs these past few days, a substantial portion of the population who we're told are "just about managing". According to reports, chancellor Philip Hammond has billions of pounds to spend making their lives easier.

But don't be fooled by yesterday's cheery public finances, things are much worse since the March Budget and there will be limits as to what Hammond can do.

According to Office for National Statistics (ONS) data released Tuesday, the monthly deficit fell to £4.8 billion in October from £6.4 billion a year ago. Economists had pencilled in £6 billion. However, borrowing in the first seven months of the fiscal year is already within £8 billion of the £55.5 billion deficit target for the entire year, set by the Office for Budget Responsibility (OBR) in March.

Hammond is desperate for money to bankroll big spending ahead of next March when Theresa May still promises to get the Brexit ball rolling and trigger Article 50 (A50). But he's promised "fiscal discipline", too, which limits the chances of a big giveaway budget.

Given there have been far fewer leaks than is usual at Budget time, much more guesswork is required this time.

Evolution not revolution

"I expect evolution not revolution from the Osborne years, as the fiscal wriggle room is limited and fighting her own parliamentary party on the domestic agenda when battles loom over Brexit would appear ambitious, even for someone with Mrs May's legendary work ethic," warns Panmure Gordon's chief economist Simon French.

"I think the government will look at Brexit and the US election and conclude that delivering for the JAMs' households will be the rhetorical centre-piece of Wednesday's statement, with higher inflation looming and the prospect of an uncomfortable squeeze on living standards during the second half of 2017."

But how will this manifest itself in government policy?

French predicts additional borrowing of £90 billion over the rest of the parliamentWell, French believes the government is on course to borrow £15 billion more this fiscal year, and as much as an extra £25 billion in 2017/18.

That's bad news, coming as gilt yields and inflation rise, and at a time when UK growth is tipped to halve amid Brexit concerns.

French predicts additional borrowing of £90 billion over the rest of the parliament. But he doesn't think it matters much. With gilt yield remaining low, the government can simply borrow to fund any new spending commitments or tax cuts, he argues, although they must also prove that borrowing is coming down year-on-year.

Infrastructure and housebuilding

Expect a wave of infrastructure and housing commentary. Hammond has already flagged an extra £1.3 billion for road repairs, but French predicts £15 billion of additional capital spending by the end of this parliament.

"The big ticket stuff on CrossRail 2, High Speed 3, renewable energy and supplementary airport expansion plans is likely to be deferred to March Budget," says French.

Clever accounting on infrastructure bonds could keep heavy spending 'off book'"'Brexit Insurance' infrastructure spending announced next week will be small scale, local projects like filling in potholes, maintaining local communal areas - the Eddington Principle. Basically stuff that can be done quickly.

"A joint venture between home builders and the HCA [Homes and Communities Agency] is a very plausible option and I think the sector will get some carrot to go with the stick that can be expected in respect of land-banking."

There's an interesting "left field" idea around infrastructure bonds. Clever accounting, says French, would keep this type of heavy spending "off book".

Elsewhere, while business rates are likely to remain unchanged, French believes there may be some watering down of universal credit benefit cuts, designed to head off a possible backbench rebellion.

Tax and regulation

Those looking for tax cuts may be disappointed, with any reductions likely to be at the bottom end of income distribution. A tax holiday on stamp duty for properties below £250,000, and raising the income tax personal allowance towards £12,500, is possible. Top-end tax cuts "seem unlikely," according to French.

"I think the government is reluctant to tax income at a time when economic momentum ahead of Article 50 is the key target but higher CGT, tighter restrictions on non-doms, greater levies on dividend income, removal of higher rate tax relief on pension saving cannot be wholly dismissed.

There will be an announcement on the level of the 2017/18 National Living Wage"For the avoidance of doubt I don't think May or Hammond will want to do any of the latter, but they are in a fiscal straightjacket and if they want to do infrastructure expansion and keep some semblance of fiscal discipline I do not see how they can avoid some tax increases."

Lastly, on regulation, French believes the government will try and close a wheeze in the buy-to-let market, which lets landlords use corporate vehicles to pay themselves the rent as dividends.

There will be an announcement on the level of the 2017/18 National Living Wage, too, reckons French, up to £7.60. "It is possible that recent benign earnings growth means the government could low ball and remain on track to achieve 60% of median income.

"Any such announcement will be greeted positively by consumer services companies that have lined up during third-quarter results to complain of the challenges posed by this policy."

For the latest news and expert analysis on the chancellor's maiden set-piece budget speech and its repercussions, make sure to check out Interactive Investor's Autumn Statement hub.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.