Chancellor Philip Hammond has revealed his first and last Autumn Statement, but in many ways it marked a continuation of the policies of the previous chancellor, George Osborne.
At first glance there were big differences between Autumn Statement/Budget Philip Hammond style and the missives of George Osborne. But drill down, and we see that they are more similar than they first appear.
Indeed, the most noticeable difference is that Mr Hammond said that he is removing the Autumn Statement from the calendar altogether, just sticking to one annual budget – to occur in the Autumn and with a less dramatic Spring Statement which will largely focus on commenting on forecasts from The Office of Budget Responsibility (OBR), the independent body set up earlier this decade to make independently generated forecasts of the economy.
In fact, the OBR has projected that public debt will peak in the year 2019/20, at 90.2 per cent of GDP. So for all the Osborne austerity, the public debt is set to get much bigger than previously forecast. Furthermore, the chancellor is now talking about balancing the budget at some point during the next parliament – contrast that with Mr Osborne’s last budget, forecasting a budget surplus by the end of the decade.
Brexit is getting the blame, but only up to a point. GDP is now projected to be 2.4 per cent lower at the end of the forecast period than would have been the case if the EU referendum had turned up a Remain verdict. On the other hand, OBR estimates suggest that the UK is expected to perform at least as well as Germany, and better than most larger EU economies over this period, implying that EU membership is not so good for an economy either.
But for all the much heralded talk of infrastructure stimulus, which is going ahead, along with investment into innovation, to the tune of £23 billion in the shape of a national productivity fund, actually the big differences between projected borrowing now, compared to when George Osborne was making his last Budget speech, can almost entirely be explained by a slow-down in growth.
Chancellor Phil plans to reduce the structural budget deficit by 0.8 per cent of GDP in 2017 and 0.7 per cent in 2018, which, as Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics pointed out, is “only slightly less than the 0.8 per cent and 0.9 per cent consolidations planned by his predecessor.”
Mr Tombs conceded however, that “Mr. Hammond probably is preserving scope to reduce the fiscal consolidation further in the March Budget in just four months time” but said that with “the debt-to-GDP ratio now set to peak at 90.2 per cent of GDP in 2017/18 and bond markets around the world beginning to be less tolerant of fiscal largesse, we doubt that the Chancellor will set fiscal policy actively to support the economy over the coming years. With monetary policy constrained by high inflation, the safety net for the economy going forward is remarkably thin.”
The National Institute of Economics and Social Research emphasised the Brexit effect, with
Dr Angus Armstrong, its Director of Macroeconomics, saying: "Brexit has had a very substantial impact on the OBR’s fiscal forecasts.”
But neither Dr Armstrong, nor his colleague at the institute, Simon Kirby, Head of Macroeconomic Modelling and Forecasting could hide their disappointment. Dr Armstrong said: “We had hoped for much more in terms of industrial strategy and to address the skills and output gap across the regions at the heart of long-term prosperity.” While Simon Kirby, said: “The OBR’s latest forecasts make for sobering reading.”
A report from Capital Economics had a slightly different take. It said that “the measures taken to support the economy amount to less than £10 billion in 2020/21. This leaves the fiscal stance still tightening quite aggressively in the coming years, as the cyclically adjusted budget deficit falls from 3.3 per cent of GDP this year to 0.8 per cent by 2020/21.
“It was striking that all current spending and tax measures in the Statement summed to close to zero. The net relaxation of fiscal policy came mostly in the form of more public investment through the so called National Infrastructure Fund. Pleasingly, the Chancellor eschewed the advice of some commentators to finance spending with a new infrastructure fiscal instrument. Instead, extra infrastructure spending will simply add to the total borrowing requirement.”
The Capital Economics report concluded: “This Statement will have disappointed many people who were hoping for radical tax measures – or at least a vison of radical measures yet to come. But time – as well as money – has been short. We may yet see more radical measures in the spring Budget.”