Rather than being a rumbustious Budget, replete with various juicy tax and spending measures, yesterday’s Spring Statement was supposed to be more like an old-style, worthy but dull Autumn Statement that merely reviewed the economic and forecast numbers. In fact, it didn’t even rise to that exalted standard.
This is not to criticise the Chancellor. In view of current political uncertainty, including the sandwiching of this statement between important parliamentary votes, this was hardly the time for big measures or even grand gestures.
As so often, the key player was the Office for Budget Responsibility (OBR). When it last pronounced in October, the OBR thought that the economy would grow by 1.6pc in 2019. It now expects growth of only 1.2pc this year. Normally, such a downgrade would spell bad news for the Chancellor. But not this time. The OBR thinks that once Brexit uncertainty is resolved, growth lost this year will be recovered in later years.
Moreover, the OBR reckons that the recently improved trend in the public finances will be sustained. Tax receipts will be boosted by continued strong growth of pay. Indeed, it reckons that we will pay £50bn more in income tax by 2023-24. Meanwhile, the now lower likely path of interest rates has reduced government debt payments significantly.
In October the OBR believed that to meet his declared target of bringing the structural budget deficit below 2pc by 2020-21, the Chancellor had some £15bn in hand. Now it thinks the figure is £27bn. This presents the Chancellor with some choices. Since the EU referendum in June 2016, there have been six Budgets, Autumn Statements and Spring Statements. In each the Chancellor has loosened the purse strings, this one included. This time the loosening was only modest – less than £1bn net for the coming financial year.
How to spend these modest sums? Of course, there was the usual array of minor measures and the Chancellor gave us a varied display of virtue signalling. There were passages about the environment, climate change, plastic waste, sanitary products and the fight against knife crime. This hardly amounted to the agenda for an economic strategy. Just about the only substantive measure that Mr Hammond announced was an extra £3bn for a scheme to boost affordable housing. When will they ever learn? I am never quite sure whether governments just don’t understand that measures to help particular buyers to acquire houses without doing anything to boost supply simply raises prices, or whether they understand this only too well but cynically believe voters don’t.
The main thrust of Mr Hammond’s statement was to convey the message that, provided that the House finds its way to support a deal with the EU, then good times lie ahead of us. Interestingly, the terms of the deal don’t seem to have much effect on the UK’s economic prospects. Nevertheless, if we left the EU without a deal then our prospects would be worse, whatever we chose to do with our new-found freedom. Funny that.
But the Chancellor couldn’t actually say that if we left without a deal the UK economy would go down the tubes. Indeed, he pointed out that, despite the burden of Brexit uncertainty, the economy had actually performed pretty well. He acknowledged that in the event of a no-deal Brexit he would give some fiscal support to the economy, and that no-deal plans were in place.
Intriguingly, in talking about the fiscal position that would pertain in a no-deal Brexit, the Chancellor didn’t mention the UK’s £39bn that is due to be transferred to the EU under Mrs May’s Withdrawal Agreement. No deal would imply no dosh, wouldn’t it? Unfortunately, against the legal judgment of the House of Lords, the guardian of our nation’s finances thinks that we would have to hand over most, or all, of the £39bn anyway.
In reality, provided that UK economic performance is not sunk by a weak world economy, the fiscal outlook really is much improved – and by more than the OBR suggests, including in the event of a no-deal Brexit. There will be no bonanza but in contrast to all the current parliamentary hand-wringing, we now urgently need a debate about what to do with this greater fiscal room, created in part by the fact that we will collectively be paying much more tax. A truly Conservative government would now be discussing the merits of various sorts of tax cut.
At least Mr Hammond is good at bashing Labour. He had much fun in pointing out the abject failure of the opposition’s economic forecasts. It has persistently been too gloomy about the UK’s recent economic forecasts, apparently seeing recessions around every corner. But hold on, doesn’t that ring a bell? Strangely, the Chancellor didn’t say anything about the Treasury’s Project Fear exercise before the EU referendum in 2016.
Supposedly, according to HMT then, if we had the temerity to vote for Brexit we would plunge the economy into an immediate recession – or a slump – from which we would only now be emerging. Whoops! Now Mr Hammond is telling us that in the event of a no-deal Brexit, never mind any short-term dislocation, we would be permanently much worse off than under Mrs May’s “deal”. Pull the other one!
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