This Budget was more timid than transformative

22 Nov 17

There wasn’t much of a strategy behind Philip Hammond’s statement, either politically or economically, says Dan Corry

P Hammond Autumn Budget 2017

Photo: PA

This Budget was one of the hardest for many years. The Chancellor, not the most agile or ambitious post holder ever to have held the job, was snookered by both real and political factors – some of his and his Cabinet colleagues own making.

The economy is not strong partly as a result of the Brexit vote and its consequences for real wages and business investment, partly as a consequence of underlying weaknesses that have been amplified by the impact of austerity. And it is much less strong than he thought at the last financial event in March.

Indeed, the downgrades in the forecast from the OBR are very depressing – growth in 2018 and 2019 down from a pretty miserly 1.6% and 1.7% in the forecast as recently as March to 1.4% and 1.3% now. Whatever happened to the days when 2% was considered a major disappointment?

The story on productivity, the thing that ultimately determines our prosperity as a nation, is even more gloomy.

The OBR have finally given up thinking it will turn around and catch up for the many years that is has languished below what we are used to.

Now they have downgraded trend productivity growth by 0.7 percentage points a year.

As they put it: “This reduces potential output in 2021-22 by 3.0 per cent” a big hit in anyone’s terms (with better employment news softening that a bit). Prospects for real wages do not look good, as the forecast shows nominal wage increases hovering below the CPI next year and only slowly exceeding it over time.

All this bad news also means that the chancellor has some serious issues to address with the things that felt like they used to matter a lot - the size of the debt and deficit.

The deficit is still coming down over time but more slowly than he told us in March and a lot slower than we were told even in 2016.

Debt may be forecast to peak this year but is still only just under 80% when we get to 2022-23. It’s not a great story given some of the things past Conservative ministers have promised. 

The country, as we sort of know from the way the 2017 election went, has had enough of austerity. And so the austerity issue that the Tories were so keen on for so many years has been quietly ditched, even if the taps have not exactly been turned full on.

In moments like this you have two choices. Go timid and hope that something turns up. Or go big and try and excite people that you have a plan and a strategy.

Hammond typically went for something in the middle – although towards the timid end.

The very weakness of the government and its inability to get anything much through the House that might raise taxes (hence giving rise to their decision not to end the triple lock, or to bring in the self-employed tax increases last year) meant there was little movement here.

There was some action on spending.

The strong hint of more pay for nurses (although note that “Any pay deal will be on the condition that the pay award enables improved productivity in the NHS” – and no general end to the public sector pay cap); the injection of investment money into transport in some of the city regions plus money for new tech things and a move to index business rates to the lower CPI; the increase in health expenditure, responding to the brave – even brazen - lobbying of Simon Stevens; the slight weakening of the benefit cuts – at least in terms of universal credit if not the general benefit freeze, that remains intact; the ritual attack on tax avoidance; all see some more money, as well as fairness, injected into the system. With interest rates starting to rise this will be welcome.

The housing package was a political necessity as well as much needed economically. But whether it was wise to see such a high percentage of the actual cash (as opposed to loans and guarantees) going into a headline grabbing stamp duty reduction that will most likely just lead to house price increases, is unclear.

Overall it remains hard to discern any strategy lurking behind this Budget – either an economic or a political one.

Maybe it was to do the minimum needed politically but to keep the fiscal powder safe and dry in case Brexit – or the workings of the economy – lead to a sharp downturn in the next few years.

Maybe it was just to save the PM’s skin for a few more months. At some point we will need a serious assault on the productivity problem. Let’s keep hoping.

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