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Budget 2017: The UK economy's prospects in six charts Budget 2017: The UK economy's prospects in six charts
(about 2 hours later)
Philip Hammond has delivered the first Autumn Budget. In Philip Hammond’s Autumn Budget there was the usual barrage of announcements of everything from growth downgrades, to new spending pledges, to tax cuts, to welfare tweaks.
There were announcements of growth downgrades, new spending pledges, some tax cuts and productivity revisions. But the big picture we should take away from this fiscal event?
But what is the big picture we should take away from this fiscal event? What did we learn about the outlook for the economy as we hurtle towards Brexit in 2019?
Here we tell the story of the 2017 Autumn Budget in six charts.
The basis for all of the forecasts from the Office for Budget Responsibility, the Treasury's official prognosticator, are its view of productivity, or the nation's output per hour worked.The basis for all of the forecasts from the Office for Budget Responsibility, the Treasury's official prognosticator, are its view of productivity, or the nation's output per hour worked.
And, as expected, at this fiscal event it has taken a much more pessimistic view relative to March. And, as expected, at this fiscal event the OBR has taken a much more pessimistic view relative to its last report in March.
The OBR has downgraded its estimate of productivity growth by 0.6 per cent on average in the four years to 2021-22.The OBR has downgraded its estimate of productivity growth by 0.6 per cent on average in the four years to 2021-22.
Because productivity growth is a key ingredient of overall GDP growth, those downgrades have a negative impact on the OBR's view of how rapidly the overall economy will grow over the coming years.Because productivity growth is a key ingredient of overall GDP growth, those downgrades have a negative impact on the OBR's view of how rapidly the overall economy will grow over the coming years.
The OBR now expects growth to dip to just 1.3 per cent in 2019, the year of Brexit.The OBR now expects growth to dip to just 1.3 per cent in 2019, the year of Brexit.
Even worse, it only expects growth to pick up moderately to 1.6 per cent by 2022.Even worse, it only expects growth to pick up moderately to 1.6 per cent by 2022.
In March, the OBR expected the economy to grow by 7.5 per cent in the five years to 2021-22. Now it expects just 5.7 per cent growth. In March, the OBR expected the economy to grow by 7.5 per cent in the five years to 2021-22. Now it expects just 5.7 per cent growth over that period.
In fact, this is the worst five year GDP outlook produced by the OBR since it was established in 2010. In fact, this is the worst five year GDP outlook produced by the OBR since it was established in 2010.
Lower productivity and GDP growth will hit tax revenues over the coming years.Lower productivity and GDP growth will hit tax revenues over the coming years.
Yet, despite this, the Chancellor announced plans today to loosen fiscal policy over the near term, allowing government departments to spend more and delivering a net tax cut for households.Yet, despite this, the Chancellor announced plans today to loosen fiscal policy over the near term, allowing government departments to spend more and delivering a net tax cut for households.
Still, despite this near term fiscal loosening, Mr Hammond is still projected by the OBR to be on course to meet his fiscal mandate of limiting the structural deficit to below 2 per cent of GDP in 2020-21. Notable was more funding for the NHS in 2018-19 and 2019-20. Fuel duty was frozen yet again. The Treasury has also pencilled in £3bn in spending to “prepare” for Brexit.
However, he had around £26bn of leeway against this target in March. Still, despite this near term fiscal loosening, Mr Hammond is still projected by the OBR to be on course to meet his self-imposed fiscal mandate of limiting the structural deficit to below 2 per cent of GDP in 2020-21.
Now, that headroom has been significantly reduced to just £14bn. However, he had around £26bn of leeway against this target in March. Now, that headroom has been significantly reduced to just £14bn.
The second part of the Chancellor's self-imposed fiscal mandate is to see debt falling as a share of GDP by 2020-21. If the economy falters even more than expected over the next two years – which could well happen if it looks like we are heading for a cliff-edge Brexit – that remaining headroom would be quickly wiped out.
In March this was due to be achieved early - in 2018-19. The second part of the Chancellor's self-imposed fiscal mandate is to see debt falling as a share of GDP by 2020-21.
But now the OBR expects it to happen earlier still (just) - in this very financial year (2017-18). In March this was due to be achieved early, occurring in 2018-19.
However, the watchdog explains in its report that this is primarily due to the recent re-classification of some £70bn of housing association debt as no longer being on the public balance sheet. But now the OBR expects it to happen earlier still. In this very financial year (2017-18) net public sector debt is due to edge down by 0.1 percentage point to 86.5 per cent of GDP.
The OBR says that this doesn't make any substantive difference since the Government would almost certainly have to rescue any housing associations if they went bust, meaning that their liabilities remain effectively on the public books even if, for accounting purposes, they have been removed. However, the watchdog explains in its report that this unexpected improvement is primarily due to the recent re-classification of some £70bn of housing association debt as no longer being on the public balance sheet.
The Chancellor spoke once again of the imperative of lifting state investment to help raise our abysmal levels of productivity in the UK. The OBR adds that this doesn't make any substantive difference since the Government would almost certainly have to rescue any housing associations if they went bust, meaning that their liabilities remain effectively on the public books even if, for accounting purposes, they have been removed.
There was indeed some additional infrastructure investment spending over the next two years in the figures. The Chancellor spoke once again of the imperative of lifting state investment to help raise the abysmal levels of productivity in the UK.
Yet, overall, the level of state investment relative to GDP by 2022-23 is still only 2.3 per cent, which is rather low compared to many of our peer economies in Europe. There was indeed some additional infrastructure investment spending over the next two years in the figures.
Yet, overall, the level of state investment relative to GDP by 2022-23 is still only 2.3 per cent, which is rather low compared to many of our peer economies in Europe.
Labour, by contrast, have pledged to raise the state rate of investment to 3 per cent of GDP.Labour, by contrast, have pledged to raise the state rate of investment to 3 per cent of GDP.