Philip Hammond’s first, and last, Autumn Statement was a sober affair as he made a critical appraisal of Britain’s current capabilities and its weaknesses as it heads into unsteady waters.
The key message was that Brexit would offer an opportunity for many areas of trade, but that it also presented long-term weaknesses of the UK economy for all to see, especially around issues of productivity. The country needs to prepare for transition as we leave the EU, Hammond made clear, which requires a new style of fiscal discipline.
While there were a number of key successes flagged, such as an employment at an all-time high, growth of 2.1% in 2016 (higher than forecast by the OBR in March), with next year’s set to match Germany’s and exceed many European states’ predictions, these were tempered with Hammond’s characteristic pragmatism.
Philip Hammond’s first, and last, Autumn Statement was a sober affair as he made a critical appraisal of Britain’s current capabilities and its weaknesses as it heads into unsteady waters.
The key message was that Brexit would offer an opportunity for many areas of trade, but that it also presented long-term weaknesses of the UK economy for all to see, especially around issues of productivity. The country needs to prepare for transition as we leave the EU, Hammond made clear, which requires a new style of fiscal discipline.
While there were a number of key successes flagged, such as an employment at an all-time high, growth of 2.1% in 2016 (higher than forecast by the OBR in March), with next year’s set to match Germany’s and exceed many European states’ predictions, these were tempered with Hammond’s characteristic pragmatism.
Hammond set out that while he would no longer seek a deficit reduction by 2020, he would seek to do so as soon as practicable. He stressed that potential growth is likely to be 2.4% lower than would otherwise be predicted following the Brexit vote, and there is a higher degree of uncertainty. Given the OBR forecasts that debt will rise from 87.3% of GDP this year to a peak of 90.2% in 2017-18 as the Bank of England’s monetary policy interventions approach their full effect, reduction could take some time.
Hammond did not merely throw away the rule book in terms of the Government’s fiscal events, but he also drafted a new one with the announcement of the Charter for Budget Responsibility. Its three fiscal rules set out that the public finances should be returned to balance as early as possible in the next Parliament, and, in the interim, cyclically -adjusted borrowing should be below 2% by the end of this Parliament. Secondly that public sector net debt as a share of GDP must be falling by the end of this Parliament. Finally welfare spending must be within a cap, set by the government and monitored by the OBR.
As reported in the press, focus for this new leadership is ‘just about managing’ or ‘Jams’. JAMs are the ‘squeezed middle’ where families are just about able to balance earnings and Hammond delivered a series of announcements on universal credit and the tax threshold.
His sober analysis of the weaknesses of UK productivity, and the need to ‘reset’ the economy to ensure it is structurally sound to weather new challenges, has created a fiscal event that prioritises high value investment to directly contribute to UK productivity.
Full briefing here.