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| Philip Hammond's autumn statement is a welcome reality check Philip Hammond's autumn statement is a welcome reality check | |
| (14 days later) | |
| Philip Hammond’s message was stark and clear. The result of the EU referendum in June means the economy has arrived at a reality checkpoint. Deep-seated weaknesses will be exposed as the government negotiates a Brexit divorce between now and 2019. | Philip Hammond’s message was stark and clear. The result of the EU referendum in June means the economy has arrived at a reality checkpoint. Deep-seated weaknesses will be exposed as the government negotiates a Brexit divorce between now and 2019. |
| The chancellor was candid about Britain’s woefully poor productivity record. He admitted that infrastructure was deficient. There was no attempt to disguise the fact that there is a prosperity gap between London and other major cities. | The chancellor was candid about Britain’s woefully poor productivity record. He admitted that infrastructure was deficient. There was no attempt to disguise the fact that there is a prosperity gap between London and other major cities. |
| He used his autumn statement to address some of these long-term issues rather than to provide immediate help to the “just about managing” households, the so-called Jams, championed by the prime minister. | He used his autumn statement to address some of these long-term issues rather than to provide immediate help to the “just about managing” households, the so-called Jams, championed by the prime minister. |
| To be sure, there was the pre-announced increase in the national living wage, the inevitable freezing of fuel duties for a seventh straight year and a change to universal credit to make the cuts announced by his predecessor less severe. Most of George Osborne’s welfare savings will go ahead, however, with Hammond deciding the best way to help the Jams is through an economy that generates higher-paid jobs. | To be sure, there was the pre-announced increase in the national living wage, the inevitable freezing of fuel duties for a seventh straight year and a change to universal credit to make the cuts announced by his predecessor less severe. Most of George Osborne’s welfare savings will go ahead, however, with Hammond deciding the best way to help the Jams is through an economy that generates higher-paid jobs. |
| He has also left money in the bank in case he needs it during what are certain to be tricky times for the economy during the two-year article 50 process. | He has also left money in the bank in case he needs it during what are certain to be tricky times for the economy during the two-year article 50 process. |
| In all, Hammond announced that borrowing will be £122bn higher over the next five years than the independent Office for Budget Responsibility predicted in March. In part, that’s down to growth being less tax-rich than previously thought. Britain has been good at creating low-skilled employment, but members of the precariat don’t earn enough to pay all that much tax. | In all, Hammond announced that borrowing will be £122bn higher over the next five years than the independent Office for Budget Responsibility predicted in March. In part, that’s down to growth being less tax-rich than previously thought. Britain has been good at creating low-skilled employment, but members of the precariat don’t earn enough to pay all that much tax. |
| The overshoot is also driven by the increases in infrastructure spending Hammond announced. These are modest given the backlog of work that needs to be done, but welcome nevertheless. | The overshoot is also driven by the increases in infrastructure spending Hammond announced. These are modest given the backlog of work that needs to be done, but welcome nevertheless. |
| The chancellor has also left himself a sizeable amount of wriggle room should the economy’s slowdown over the next two years prove more pronounced than the OBR fears. | The chancellor has also left himself a sizeable amount of wriggle room should the economy’s slowdown over the next two years prove more pronounced than the OBR fears. |
| The OBR thinks the economy will grow by 1.4% in 2017 and 1.7% in 2018, down from the 2.2% and 2.1% respectively it pencilled in at the time of the March budget. Inflation is predicted to be 0.7 percentage points higher at 2.3% next year. | The OBR thinks the economy will grow by 1.4% in 2017 and 1.7% in 2018, down from the 2.2% and 2.1% respectively it pencilled in at the time of the March budget. Inflation is predicted to be 0.7 percentage points higher at 2.3% next year. |
| The figures could prove wrong, perhaps significantly so, which is why Hammond has made contingencies. By ditching Osborne’s plan to run a budget surplus by the end of the parliament, he has given himself scope to borrow £56bn more in 2021 than under the pre-referendum plans. | The figures could prove wrong, perhaps significantly so, which is why Hammond has made contingencies. By ditching Osborne’s plan to run a budget surplus by the end of the parliament, he has given himself scope to borrow £56bn more in 2021 than under the pre-referendum plans. |
| Of that, around £20bn will be absorbed by slower growth and just under £10bn has been spent on the measures in the autumn statement. That leaves £26.5bn as a rainy day fund in case the economy performs less well than forecast or he wants to provide more giveaways. | Of that, around £20bn will be absorbed by slower growth and just under £10bn has been spent on the measures in the autumn statement. That leaves £26.5bn as a rainy day fund in case the economy performs less well than forecast or he wants to provide more giveaways. |
| That’s a smart move. In the current circumstances, economic forecasting is even more of a mug’s game than usual. | That’s a smart move. In the current circumstances, economic forecasting is even more of a mug’s game than usual. |