Four macroeconomic things stand out from the Autumn Statement.
First, Philip Hammond is expecting 'economic headwinds'. He said so and this was the pervasive underlying, mainly unstated, fear that underpinned most of his decisions. In fact, it was why there were so few decisions. Hammond clearly fears Brexit meltdown. That is why he is keeping all he can in reserve.
Second, growth will be weak at best. It was forecast, but even Hammond had to draw attention to the OBR's risk warnings attached to the forecast. And did you notice the talk on inflation? No, nor did I. Maybe that was something he would rather avoid: the bad news there is already unavoidable.
Third, we learned fiscal rules can be abandoned with impunity as Osborne's were rejected without a backward glance. That which replaced it was worse though in many ways. First the books will be balanced, but we don't know when. So that's austerity forever. Second, debt as a proportion of GDP will shrink. That's a licence for privatisation. Third, benefits will be capped. This is a plan for continued shrinking of the state at cost to ordinary people, and the social safety net.
Fourth, the so-called investment plan is peanuts but seems to focus on those hubs of desperation known as Oxford and Cambridge. Everything else was left to the (very) small print.
Let me turn to the micro economy then. First, next year's cruel benefit cuts will continue. And the changed taper on benefits cannot compensate for the failings of Universal Credit.
Second, at the same time the expensive (£6 billion a year) cuts to corporation tax will continue.
Third, steps are to be taken to make sure small business does not get the benefit of these corporation tax cuts. This will be massively divisive in Tory heartlands.
Fourth, personal allowance increases have little impact on poverty. But in fairness increases in the living wage will.
Fifth, the change in rental rules looks good but in buoyant rental markets will soon reappear as real rent increases.
Sixth: was there a sixth? This was an Autumn Statement so bereft of ideas that abolishing the Autumn Statement may be a headline in itself.
But through it all there was one lie, and that is the one about debt. This is not £1.6 trillion. It is £435 billion less because that's how much of the debt the government owns itself. And you can't owe yourself money. But the lie is still told time and again to destroy the chances of ordinary people in this country, all of whom have every reason to be angry as a result.
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Apparently Phillip Hammond is passionate about productivity. I think we should all be passionate about it if it means people in low paid and low skilled jobs move up the ladder to higher paid and higher skilled jobs. Something I remember reading in the US election coverage. It is all very well offering people £15 dollars an hour to work in MacDonalds, but middle aged family supporting men (and women) don’t want £15 dollars an hour to work in insecure jobs like MacDonalds. What they want is stable secure, decent, long term employment.
Having said that, I can’t see how Hammonds budget addresses productivity in any meaningful way. And I think that is because the budget defecit hasn’t been adressed in any meaningful way. As you argue, a balanced budget at some time in the future, means permanent austerity, and the impact that has on productivity. The way it skews government expenditure from investment in public services and infrastructure towards the impact of recession (increased welfare spending, emergencies that arise eg. from lack of NHS funding, debt service, the political need to reduce personal taxation to make up for stagnant living standards etc.)
So if Hammond was serious about productivity, he would cut out all the give-aways, eg. reducing corporation tax, increasing the personal tax allowance. He would even state categorically that the priority is to reduce the defecit, rather than to give money away in this way. (Increasing the personal allowance has cost about £70bn thus far, and the bill increases every year. And as you say, the corporation tax cuts will cost £6bn).
And that would allow us to shift government expenditure to pubic services and investment. And that would allow us to address the problem of lack of productivity.
So my guess is that just like Osbourne totally failed to eliminate the deficit. Hammond will totally fail to address productivity. Because he doesn’t actually have a clue what it is and what drives it.
He will never hurt his friends
Increase in living wage or in minimum wage?
I don’t think it’s a living wage is it, increased or not?
Minimum – sorry – written in haste between interviews
Short term negative tinkering, when what we needed was major changes to meet the long term implications of Brexit, social inequality and climate change.
The Autumn statement should have been released on Black Friday a suitable time for misleading statements and innuendoes ?
If you pull them up on that lie, they protest that the bonds will eventually be sold back into the market and the money “retired”. They don’t seem to get the simple fact that the money has already been spent during the 2009-2012 period by the Labour and coalition governments.
Looking at the DMO numbers ( http://www.dmo.gov.uk/index.aspx?page=publications/Quarterly_Reviews ) between March 2009 and Dec 2012 the totals gilts in the market went from £642 billion to £1,354 billion, an increase of £712 billion.
During that period the BoE removed £375 billion from the market, which leaves £337 which the market bought and retained (this is net of any churn).
If QE hadn’t been available would the markets have been able to take the extra £375 billion of bonds which the UK government needed to support the deficit. This was over double the number of gilts which were bought and retained by the market during that period,
As you say, these will never be sold back
And why would they be? That would just deflate the economy
I am not sure why you describe Oxford and Cambridge as “hubs of desperation”.
Whilst I appreciate that you don’t agree with the Economics courses taught at almost all the universities in the country there can be little doubt that Oxford and Cambridge are world leaders in research in many other areas.
That was ironic
I was implying they are not the first places that need assistance
“That is why he is keeping all he can in reserve”
I think this needs further explanation, least to me, anyway.
what reserve?
the government can either borrow from the private sector or from the BoE to stimulate the econnomy. assuming that it does not want to depress/deflate it.
Seems that fiscal stimulus is not a string they wish try pushing – perhaps it makes little difference to genuine productive economies?
Where has it been tried?
He’s keeping a fiscal stimulus back
VAT cuts
Direct intervention
Significant investment
Nothing much was really announced
I’ve been trying to get detail behing the announcement on the corporation tax giveaway, and I’ve failed.
Can you explain what you mean by “Third, steps are to be taken to make sure small business does not get the benefit of these corporation tax cuts”?
See the notes on this on a blog this morning
There is to be a consultation on how the tax loss to incorporation can be stopped
I know several ‘hard working families’ who are losing out due to the transition to Universal Credit. The money given away in corporation tax reductions might have saved them from that.
Precisely
Oh I’m angry alright – believe you me!