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Will it be victory for spreadsheet Phil or for political expediency?

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Today Philip Hammond will unveil the first Monday budget since 1962. The chancellor might be hoping that he does not suffer the same fate as the author of that budget. Three months later Selwyn Lloyd was sacked by Harold Macmillan, the prime minister.

On the bright side it looks as if Mr Hammond will have significantly more money to play with than he had expected.

Borrowing has persistently come in under forecast. Last year we borrowed £20 billion less than had been expected as recently as November 2016. Borrowing will probably undershoot again this year, totalling less than £30 billion for the first time since 2002. Given that we were dealing with deficits at record peacetime levels as recently as 2010 this is a pretty remarkable turnaround.

Unfortunately, as far as we can tell, the finances are not coming in better than expected because the economy is doing well. Growth remains miserable by both historic and international comparison. The eurozone’s economies are growing almost twice as fast as the UK. The US is doing better still. Sadly the economy appears to have slowed pretty much in line with those much maligned post-referendum forecasts. While this slowing took longer than expected to happen, it has happened as inflation has hit consumer spending and uncertainty has undermined business investment. You can never be sure of these things but there is something close to a consensus that the economy is about 2 per cent smaller today than it would have been had the referendum result gone the other way.

What seems to have happened instead is that tax revenues have been more robust than expected given the rate of economic growth. There has also been some underspending relative to plans.

Mr Hammond perhaps won’t be too fussed about the reasons for his good fortune. He might be more fussed about the hospital pass that the prime minister sent his way at the Conservative party conference. She declared austerity to be over. What does that mean?

As an absolute minimum you might think that it would imply that promises on the NHS, defence and overseas aid would be kept while cuts to day-to-day spending would cease across other areas of public-service provision. That would mean finding something like an additional £20 billion of spending relative to current plans by the end of the parliament. A slightly more generous interpretation, which would involve spending per capita maintained in real terms, and cuts to social security spending being offset, would cost more like £30 billion a year by 2022-23. You could come up with bigger numbers without too much difficulty.

So almost whatever Mr Hammond unveils today by way of spending totals for the next few years, finding a line of attack that suggests that austerity is not in fact over will not be difficult. I’m sure he must be delighted by the intervention of his neighbour in Downing Street.

The politics aside, the combination of lower than expected headline borrowing and clear need within the public services might lead one to expect a fair old giveaway as he sets out his spending plans. And I think there probably will be something of a loosening of the purse strings. But the chancellor has reasons to be cautious.

First, of course, there is Brexit. He probably has no more sense than the rest of us where that will end up. But he does know very well that the future path of the economy will depend on the outcome of the negotiations; and that whatever the outcome that future path is more than usually uncertain. So uncertainty is layered upon uncertainty and he may well be reluctant to make firm and fixed plans even two or three years ahead in the face of such imponderables. Any good news in this year’s public finance numbers could easily be offset by the reverse next year.

Second, while the headline deficit is low the debt is high — more than double its pre-crisis level — and is showing no signs of shrinking at all significantly. In normal times deficits as low as they are would lead to debt shrinking as a fraction of national income. But a combination of weird accounting for student loans and the fact that the economy is growing so slowly means that that is not happening now. That may not be a problem in the short run. But an ever growing debt burden would be a problem in the long run.

Third, if he wants to pay for extra spending by increasing taxes he is likely to struggle in the face of the lack of a parliamentary majority. Not only that his next-door neighbour also pre-empted his budget by announcing yet another freeze in road fuel duties, which will cost another £800 million or so in lost revenue on top of the billions already forgone after eight years of real-terms cuts. A continued freeze looks all but inevitable. There are lots of perfectly sensible places he could look for more tax revenues. Whether he has the political space to do so is doubtful.

So while the good news on the public finances is helpful this remains a tricky balancing act, not helped by the Conservatives’ own manifesto pledge to eliminate the deficit entirely by the mid-2020s. Mr Hammond’s economic instincts are manifestly hawkish. Left to himself I’m fairly sure he would prioritise meeting that manifesto pledge. The politics may demand a different course. The electorate is signalling in opinion polls and in the ballot box that they would like to see an end to austerity.

So we will know later today. Will spreadsheet Phil, the Treasury hawk, get the upper hand, or will the politician focused on more immediate pressures win?

Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist. This article was first published in The Times and is reproduced here with permission.