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| The Guardian view on the autumn statement: a break with past thinking please The Guardian view on the autumn statement: a break with past thinking please | |
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| Ever since she moved into No 10, Theresa May has had one simple pitch: I am not a born-to-rule, out-of-touch Conservative. It was the theme of her first speech as prime minister and it will be one of the ways by which she is judged. Well, now she has an opportunity to prove it. Next week’s autumn statement is her first big chance. It cannot be the usual rote reading of suspect forecasts with an easy headline here and a shot Labour fox there. Whatever Downing Street’s attempts to manage expectations, this autumn statement will the first major bit of economic strategy of this new government. It will be the first serious statement of Britain’s political intent after its voters opted to leave Europe, and it will be the first budgetary event of this decade not to be delivered by George Osborne while stood next to David Cameron. Unshowy characters that they are, Mrs May and her chancellor Philip Hammond may prefer to offer simpler fare and defer the big decisions until the budget next spring. | Ever since she moved into No 10, Theresa May has had one simple pitch: I am not a born-to-rule, out-of-touch Conservative. It was the theme of her first speech as prime minister and it will be one of the ways by which she is judged. Well, now she has an opportunity to prove it. Next week’s autumn statement is her first big chance. It cannot be the usual rote reading of suspect forecasts with an easy headline here and a shot Labour fox there. Whatever Downing Street’s attempts to manage expectations, this autumn statement will the first major bit of economic strategy of this new government. It will be the first serious statement of Britain’s political intent after its voters opted to leave Europe, and it will be the first budgetary event of this decade not to be delivered by George Osborne while stood next to David Cameron. Unshowy characters that they are, Mrs May and her chancellor Philip Hammond may prefer to offer simpler fare and defer the big decisions until the budget next spring. |
| However, that luxury is not available – not least because, after Brexit and in the run-up to Donald Trump becoming US president, Britain is in uncharted territory. No 10 and No 11 Downing Street either get ahead of events or have events dictate policy to them. The Sir Humphreys in the Treasury advising Mr Hammond will doubtless have a riposte. Look, chancellor: the hole in the public finances hasn’t gone away – if anything, Brexit will mean it grows another £100bn over five years. Besides, the Bank of England is pinning interest rates on the floor, providing all the stimulus we need. | However, that luxury is not available – not least because, after Brexit and in the run-up to Donald Trump becoming US president, Britain is in uncharted territory. No 10 and No 11 Downing Street either get ahead of events or have events dictate policy to them. The Sir Humphreys in the Treasury advising Mr Hammond will doubtless have a riposte. Look, chancellor: the hole in the public finances hasn’t gone away – if anything, Brexit will mean it grows another £100bn over five years. Besides, the Bank of England is pinning interest rates on the floor, providing all the stimulus we need. |
| Even now, the chancellor will be getting memos advising him to sit tight, maybe spend some loose change on new infrastructure and a tax cut for businesses (most likely capital allowances for corporate investment) but otherwise keep to the Book of George – and stick with austerity. This would be typically logical and typically wrong-headed. On the economics, the problems that lie ahead aren’t down to the government spending too much, but too little income coming in. Brexit has not caused a crash, but it will lead to a slowing down as businesses defer investments and uncertain households delay plans to spend. What’s needed is not expenditure cuts, but a fiscal stimulus to fuel the domestic economy. Second, the Bank of England will have to raise rates at some point. The slump in the pound and the importing of inflation will surely prompt hawkish monetary policy committee members to argue for a tightening. | Even now, the chancellor will be getting memos advising him to sit tight, maybe spend some loose change on new infrastructure and a tax cut for businesses (most likely capital allowances for corporate investment) but otherwise keep to the Book of George – and stick with austerity. This would be typically logical and typically wrong-headed. On the economics, the problems that lie ahead aren’t down to the government spending too much, but too little income coming in. Brexit has not caused a crash, but it will lead to a slowing down as businesses defer investments and uncertain households delay plans to spend. What’s needed is not expenditure cuts, but a fiscal stimulus to fuel the domestic economy. Second, the Bank of England will have to raise rates at some point. The slump in the pound and the importing of inflation will surely prompt hawkish monetary policy committee members to argue for a tightening. |
| Finally, Mr Hammond has signalled a “reset” might be needed, creating an opportunity for his autumn statement by easing his predecessor’s fiscal targets. The Resolution Foundation estimates there could be £17bn of headroom – enough to wipe out £12bn of welfare cuts that will next year clobber the working poor Mrs May says she wants to help. This might seem too big a U-turn, but Mr Osborne left office having broken nearly every fiscal rule he laid down – with an economy hooked on household borrowing and consumer spending. As this week’s employment figures show, more Britons are working than ever – but with less to show for it, both in personal income and productivity. That was unsustainable on 22 June; it’s unsustainable now. | Finally, Mr Hammond has signalled a “reset” might be needed, creating an opportunity for his autumn statement by easing his predecessor’s fiscal targets. The Resolution Foundation estimates there could be £17bn of headroom – enough to wipe out £12bn of welfare cuts that will next year clobber the working poor Mrs May says she wants to help. This might seem too big a U-turn, but Mr Osborne left office having broken nearly every fiscal rule he laid down – with an economy hooked on household borrowing and consumer spending. As this week’s employment figures show, more Britons are working than ever – but with less to show for it, both in personal income and productivity. That was unsustainable on 22 June; it’s unsustainable now. |
| Mrs May wants to help Britain’s just-about-managing families – people earning around £20,000 a year who miss out on in-kind benefits such as free school meals. Rather than blitzing the public with good intentions, her chancellor could help by investing in homes they could afford. Last year, work began building just 950 homes on social rent in England, available at around one-third of market rates. By contrast, 21,000 homes are being built to be rented out at 80% of market rates, a policy that benefits not JAMs but upwardly mobile young professionals. Politically, too, austerity has run its course. There is good evidence to link the discontent expressed in the EU referendum with Mr Osborne’s cuts. Economists at Sheffield Hallam university have shown that the areas hit hardest by this decade’s welfare cuts were “older industrial areas, less prosperous seaside towns, some London boroughs”. In other words, large chunks of Brexit-land. Either Mrs May thinks through the implications of such findings, or other politicians will get there. Next Wednesday, Mrs May’s government can halt austerity. With inflation about to surge, it can ensure working-age benefits go up in line with prices. It can mandate our state-owned banks to lend more to strategic industries and regions. It can link corporation tax to how much value corporations add in this country. Or it can do none of this. A few frills aside, it can offer Continuity Osborne. But that isn’t what Mrs May promised. Is it? | Mrs May wants to help Britain’s just-about-managing families – people earning around £20,000 a year who miss out on in-kind benefits such as free school meals. Rather than blitzing the public with good intentions, her chancellor could help by investing in homes they could afford. Last year, work began building just 950 homes on social rent in England, available at around one-third of market rates. By contrast, 21,000 homes are being built to be rented out at 80% of market rates, a policy that benefits not JAMs but upwardly mobile young professionals. Politically, too, austerity has run its course. There is good evidence to link the discontent expressed in the EU referendum with Mr Osborne’s cuts. Economists at Sheffield Hallam university have shown that the areas hit hardest by this decade’s welfare cuts were “older industrial areas, less prosperous seaside towns, some London boroughs”. In other words, large chunks of Brexit-land. Either Mrs May thinks through the implications of such findings, or other politicians will get there. Next Wednesday, Mrs May’s government can halt austerity. With inflation about to surge, it can ensure working-age benefits go up in line with prices. It can mandate our state-owned banks to lend more to strategic industries and regions. It can link corporation tax to how much value corporations add in this country. Or it can do none of this. A few frills aside, it can offer Continuity Osborne. But that isn’t what Mrs May promised. Is it? |