23 Nov 2016

No jam today for the Just About Managing JAMs

Last month at her party conference, Theresa May spoke in stirring terms of a revolution having happened in the Brexit referendum. She believes families struggling to make ends meet were disproportionately drawn to voting for Brexit and promised them in her conference speech that “change is coming”. The repeated refrain was like a spiritual in that speech. Today was the first opportunity to deliver a glimpse of the promised land.

One option, strangely trailed in leaks from Whitehall, would be to make good some of the mega-cuts coming down the line in working-age benefits for exactly the cohorts Theresa May was addressing. I say “strangely” because this was a trail for a show that wasn’t broadcast. Instead, what might be called “the Treasury view” won through. There could be benefits for these families over time but they will come from an improved economy itself boosted by some government infrastructure projects.

Most of the extra borrowing, though, isn’t for allocated spending, it’s to plug holes in the Government coffers – holes made, the Office for Budget Responsibility believes, in no small order by Brexit.

Robert Chote’s growth figures are downgraded for next year but more optimistic than the Bank of England ones. That means the “effects of Brexit”, which he caluculates contribute to that, are smaller than they might be. Nonetheless, in the heated atmosphere around this debate, Mr Chote has been what Sir Humphrey in “Yes Minister” would call “courageous” in setting out his estimate of “the damage”.

In the chart and table below you see their calculations for the effects of Brexit on the economy. They think that nearly £60bn of the £122bn worsening in public accounts since March is due to uncertainty bred by Brexit. They think £16bn of that is due to net migration falling, though they dismiss the idea that the Government will be getting it down to the tens of thousands any time soon.

graph1_w graph2_w

Making a success of Brexit is, according to the OBR, going to be a lot more difficult than some Brexiteers make it sound.

As Philip Hammond’s limo swept into Parliament, a Tory MP, David TC Davies, was addressing anti-EU protesters outside complaining about those who would try to reverse the referendum decision. Some of his fellow Brexiteers were cheered by the narrative Philip Hammond kicked off in his Autumn Statement, accentuating the positive in a way he isn’t associated with and emphasising that the economy was in good nick by international comparisons.

But he’s done away with George Osborne’s fiscal rules because he needs headroom for further upsets to our economic path. He’s said to be of the view that it is “not if but when” our economy takes a signficiantly bigger hit from Brexit.

Pro-Brexit MPs are insisting that the known figures, as opposed to the forecasts (always risky, support their belief that Brexit will be a success and is already showing signs of that. They say even the OBR forecasts (which many of them don’t rate highly) aren’t like the “Project Fear” Remain campaign forecasts. It’ll all be fine. Just you see.

The fundamental in all of this is that it was a “wait and see” moment. Nobody truly knows what a year or two of negotiation will mean for industry confidence, City panics or what will happen in the EU 27 or the USA in the coming year. Mr Hammond is ready to deploy hydrants if the economic fires start up. He’s not minded to re-think the massive hacking back of in-work benefits which is predecessor brought in.

The struggling families at the heart of Theresa May’s mission statement got very little out of today. No jam today for the Just About Managing JAMs. The revolution has been postponed.

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