Budget 2017: Lower growth forecast a daunting prospect for UK
This was not a transformatory Budget but the OBR figures on projected growth do threaten to change things in a big way. A 0.5% cut in trend growth sounds like nothing in particular, but cumulatively it can have a big impact.
If you have growth of 1.6% rather than 2.5% and it carries on over 30 years your economy could be 30% smaller than it would otherwise have been at the end of the period.
All else in the Budget rather fades next to the daunting thought. And if those figures aren’t enough for you, the Resolution Foundation says this is the lowest productivity since the Napoleonic wars.
Put beside that, the additional funds for Brexit preparations and the NHS look small fry.
The Office for Budget Responsibility looks mightily unimpressed by the stamp duty exemption for first time buyers. It suspects it could generate something in the order of 3,500 additional new sales and 0.3% increase in house prices. It fears it could be abused by people cheating the system and it cites the last time a stamp duty holiday was brought in and recalls the Treasury’s own conclusion that that episode saw “the majority of the value of relief … fed through to higher house prices and that it (did) not (have) a significant impact in terms of improving the affordability of residential property.”
In fact the OBR generally seems a bit miffed with the government on a number of levels. It points to a pattern of behaviour or “Augustinian” tendency in post 2010 fiscal events in which giveaways are delivered promptly but takeaways and recouping of revenues are pushed further away down the timescale. It regrets the lack of guidance from the government on Brexit. It seems to roll its eyes at the “inevitable” freezing of duties on fuel. It notes the helpful impact of reclassifying English housing associations off the government books but appears unconvinced by the rationale.
But in the Commons, the Chancellor managed to ride out all these pressures with a few Christmas cracker level jokes and a slightly upbeat delivery compared to his normal demeanour.
He said the state of the economy defied the sceptics. He promised an extra £3bn to departments and ministers (exactly who gets what tbc) who wanted cash for Brexit preparations.
Cabinet ministers may have been slightly surprised. They were only told of more money and not precise totals this morning and only a few weeks ago the Chancellor triggered a mini uprising in Cabinet when he appeared to (via an article in The Times) to be refusing extra cash for these contingencies.
Today there was none of that doubt and he even made a point of talking about the opportunities of Brexit.
It will be noted by those who aren’t fans of Brexit that the £2.8bn extra money for the NHS is somewhat less than the £3bn being spent on Brexit contingencies (itself on top of the £700m already allocated).
There’s no extra cash for public sector workers beyond the NHS nurses and even their settlement is subject to improved productivity. Letters will go out to the public sector pay review boards in the next couple of weeks from government with guidance on public sector pay but individual departments will have to squeeze it out of existing budgets.
For all the additional borrowing and the relaxation of the fiscal position, “Fiscal Phil” is still a characterisation the Chancellor is happy to live with.
With mighty coordination by the Tory whips, there were cheers and later much heckling of the Labour leader. Beneath the surface, it’s hard to imagine that the Tory MPs who dearly want him gone and replaced with someone more dynamic will have had their opinion changed. But the Chancellor didn’t today give the Prime Minister a big fresh new reason to sack him.
Her closest advisers seem to be pretty resistant to the idea of major reshuffles at a time of uncertainty and this Budget with its stark downgrades on growth only added to that uncertainty.