The chancellor was able today to try to suggest that things are getting better – and indeed in some ways they are. Compared to the Autumn Statement forecasts, growth in 2017 is up and the deficit/debt ratios to GDP are down. But as every analyst knows the key is what you are comparing to and over what time period you are looking.
Compared to the forecasts of the Budget of 2016, drawn up before Brexit, the forecast for growth in 2017 of 2% is down. Compared to many forecasts over the last seven years as to how big the economy would be by this point, they are of course much worse.
And growth expectations beyond 2017 have been moved down reflecting the view that Brexit will affect underlying growth but in the medium and longer term, not the short term as an infamous Treasury paper once suggested. Indeed the downgrades are such that the OBR expects the economy to be smaller at the end of 2020 than it did in the Autumn Statement.
Our underlying problem has been a constant hope that Britain’s productivity growth will pick up after the dive it took in the aftermath of the 2008 financial crash – which it never has. And little in this 2017 Budget forecast suggests that will be reversing any time soon with the OBR sticking to its assumptions of a recovery from an anemic 1.0% in 2016 and 1.4% in 2017 to just 1.8% by the end of 2020.
So if the future remains uncertain what is more sure is that incomes are going to be squeezed with inflation set to rise to 2.4% this year and 2.3% next, with nominal wage growth only just surpassing this. And this is before interest rates start to rise as they seem likely to do at some point – even though market expectations are that this is a still a year or two off.
Combined with (previously announced) cuts to benefits, household disposable income is expected to stagnate this year and grow only slowly in the next few years And, given a great deal of current growth is being driven by consumer spending (the idea of balanced growth long having been jettisoned) this has worrying macroeconomic implications.
The government has recognised that something needs to be done in announcing its modern industrial policy. There were a few welcome strands of this in the Budget, especially in tech skills. But this of course comes in the wake of major cuts in these areas since 2010.
And the resistance to putting more than sticking plaster resources into health and social care at this point, where the wound is clearly growing by the minute, may well come back to bite Theresa May and her team. Once the public think you have got these services into trouble it is hard to change that perception.
The biggest thing in this Budget was probably the beginning of an assault on the anomalous position of the self employed, their ‘employers’ and those others who organise themselves to avoid tax more than the employed. Here ‘Spreadsheet Phil’ lined himself up for a fight with white van man, self employed journalists, and a strong current of Conservative thinking. It is an important focus but perhaps a strange one when the issue of the day is surely the turbulent winds being created by a Brexit that he did not even mention.
