Budget 2017: Roll-up, roll-up for Hammond's magical spectacular

Hammond's magical spectacular. Credit: PA

Roll-up, Roll-up. At lunchtime and for your edification, Mr Philip Hammond will produce a magical spectacular that will, momentarily, take your breath away.

In the space of an hour The Chancellor will conjure up more homes; better roads (complete with driverless cars); improved trains and extra funding for a stricken NHS. There may even be pay rises for nurses and teachers. And will do all this, ladies and gentlemen, with little or no money to spend.

Only he won't, not really. Because, as we all know, Budget magic doesn't really exist. Look through the smoke and you can usually spot the mirrors.

There is considerable pressure on Philip Hammond to deliver all of the above. But the reality is the chancellor finds himself financially, inescapably trussed-up.

Granted, the short-term prospects look perfectly good. Economic growth has been steady, employment is higher than had been expected and tax receipts have been stronger as a result. But the longer term prospects both for the economy and the public finances are about to get bleaker.

The independent Office for Budget Responsibility is to blame. The OBR is set to downgrade its forecasts for productivity growth. It has decided that the financial crisis has damaged the productivity capacity of the UK economy (it's cruising altitude, if you like) is permanently lower than it was in 2008. If the OBR is right, this will mean lower economic growth, lower pay growth and lower tax revenues than the chancellor was banking on going forward.

The hole in the public finances this downgrade causes will be significant, enough t blow the chancellor's deficit reduction plan off course. Hammond's fiscal rule - to reduce borrowing to under 2% of national income by 2020/21 - is probably still safe for now, but the safety cushion is set to become pretty thin, with Brexit yet to come.

On Brexit we're likely to get precious little other than sound bites, like "a determination to seize the opportunities" that leaving the European Union throws up. The economic impact of a Hard Brexit in particular is potentially colossal but the OBR will avoid pressure to model it. Neither will it bank the substantial payments currently made to the EU Budget or write-off the billions the UK will pay to the EU as part of the "divorce settlement". Instead the OBR will continue to assume a "smooth transition". That may be politically prudent but it's not necessary in the public interest.

Hammond has already indicated that the Budget will be balanced, meaning that spending in one area will have to be offset by revenue raising elsewhere.

If he's feeling bold, there's more money to be had. The government is committed to raising the income tax personal allowance thresholds to £12500 and £50,000 (for higher rate taxpayers) by 2020. Hammond could freeze them thereafter and raise several billion in the process.

Fuel Duty has been frozen since 2011. He could argue a tax increase is overdue, for "dirty" diesel if not for petrol.

Hammond has made it clear he doesn't much care for the pension "triple-lock" - which guarantees a 2.5% increase to the state pension or a rise in line with inflation or earnings, whichever is higher. He could abolish it. He probably won't.

The chancellor tried bold at the last Budget and it backfired. In March he proposed to raise national insurance contributions (by 1%) for the self-employed only to ditch the idea when he was accused of breaching a manifesto commitment. Many felt he had correctly identified an unfairness in the tax system which disadvantaged employees.

Since the election in June Philip Hammond's scope to make radical changes has been further reduced. The government he is part of is diminished and depends on the cooperation of the DUP to function. He can't afford to upset anyone. Politically weakened, financially restricted, this will not be an exciting Budget.