And so it came to pass, that after a political rollercoaster of a summer, some order was restored to the UK political scene as Chancellor Philip Hammond delivered the Autumn Statement of 2016. Except that it was not really a case of ‘was you were’, seeing that whilst it was the first Autumn Statement delivered by Mr Hammond, it was also his last.
Yes, Mr Hamond promised to abolish the Autumn Statement, with Budgets now set to happen in the autumn from next year, along with a new “Spring Statement” from 2018. Basically, it’s a switch around: Spring Budgets will now take place in Autumn, and Autumn Statements will take place in Spring. It’s a literal case of the changing of the seasons. (As recent Nobel Prize winner Bob Dylan did not sing, ‘The future for me is already a thing of the past/You were my first Autumn Statement, and will be my last’.)
Musical references aside, it has nearly been one week since the Autumn Statement 2016. It ws rather a mixed bag, with a mixed reception to boot. Depending on who you ask – or what newspaper you read – it was either an unmitigated triumph, proving the doomsayers wrong as the Chancellor sought to bring about a glorous new dawn via a wave of celebrated spending. Or it was confirmation that the UK must face up to being stradled with ever-increasing debt fuelled by a borrowing bill racked up by reckless pro-Leavers. As for Mr Hammond, he was as resignedly calm as ever, telling BBC Breakfast: “I don’t think it was gloomy at all.”
Poor old Mr Hammond. He had so wanted to keep the whole thing low-key. I suspect that in that he succeeded, as very little of what he announced was probably retained by any one other than economists. I doubt whether many will be able to recall it at the end of the year, let alone next year.
But he found himself between the proverbial rock and hard place. He was caught between balancing the competing pressures of Prme Ministerial demands for more spending against Treasury demands for prudence. Not of course to forget those warnings from the Leave camp against pessimism for a UK outside the EU against the economic reality of the uncertainty for the future. I fear that uncertainty was the overall winner of the bout.
It was noticable that there were not many leaked proposals for this Autumn Statement. Mr Hammond’s predecessor had a habit of trailing the positive news from his Statement days in advance to build optimism and confidence. In a marked change, Mr Hammond only hinted at helping the JAMS (just about managing families) and promised a spending package aimed at improving infrastructure. He might have availed of his predecessor’s habit, and generated soeme positive coverage going into the day. Instead, the gloomy predictions of the cost of Brexit ended up being the headline news.
You see, after all the months of bitter bickering over what the true cost of Brexit, and what this might entail, last week the estimation of withdrawing from the EU was given at a bitter £58.7billion. That was the predicted rise in borrowing over the next four years which the Office for Budget Responsibility (OBR) directly attributes to the EU referendum outcome, and the uncertainty arising from same, with the UK economy 2.4% smaller than expected. Oh, and it gets better, as all of the above was based on the hope that the UK leaves the EU as planned by 2019.’As planned’ being the key words there.
The Brexit bill is around half of the total £122 billion extra in borrowing, on top of what was forecast back in one George Osborne’s last budget in March. Essentially, we can say goodbye to the long-planned and hoped for Budget surplus, as promised by Mr Osborne.
Speaking of borrowing: Mr Hammond declared he will also borrow another £26 billion to fund investment in housing, transport, digital technology and science research in the latest attempt to address the startling low productivity in the UK.
Appearing on ITV, BBC, Sky News and Radio 4, Hammond kept emphasising that the OBR is “independent” from British Government. On the Today programme he commented that “We know very well that economic forecasting is not a precise science”. On BBC Breakfast, he pointed out that despite some saying the OBR forecast was “gloomy”, it still predicts an extra 500,000 jobs by 2020. (So that’s alright then).
And bless the man, he did also stress that this was not all about Brexit. He told the BBC:
“Of course there is uncertainty around the process of our exit from the European Union but there is also uncertainty about what is going to happen in the United States when Donald Trump assumes the presidency. There is uncertainty about the Chinese economy.”
Basically, uncertainity is in vogue this season, and we are not the only ones struggling to find clarity.
Mr Hammond elaborated:
“The message is we have got a strong economy, we need to invest to build on that strong foundation, we need to deal with some of the long-term challenges we have in this country including our long-term productivity gap, challenges in our housing market, challenges in our distribution of economic growth across the county.
“And yes, we do need to just heed the warnings that we’re getting from organisations like the OBR and keep a little bit of fire power in our locker just in case it is needed over the next few years.”
He did try so very hard to argue that Brexit is not the be all and end all for the UK economy at this moment in time. Yet this argument was futile. Brexit means Brexit, yes. But we are not closer to understanding what this means. Uncertainty breeds. And no matter how many positive points Mr Hammond sought to pull out of his hat last week, the tension and concern surrounding Brexit taints all.
Autumn Statement 2016 Summary
- A so-called ‘Taper rate’ on universal credit cut from 65% to 63%, saving low-paid workers 2p for every extra pound they earn;
- Tax-free personal allowance to rise to £12,500 by the end of this Parliamentary mandate;
- Increase in the higher rate income tax threshold to £50,000 by the next election; and
- National living wage increased by 30p to £7.50 an hour next year.
Cost of living
- Freeze in the 2p a litre rise in fuel duty;
- 15 hours a week of free childcare for 3 and 4 year olds to be doubled;
- Insurance premium tax will rise from 10 per cent to 12% next year;
- Crackdown on whiplash claims to reduce insurance premiums by £40 on average a year; and
- A new NS&I savings bond with a rate of 2.2 per cent on deposits up to £3,000 held for three years.
- A £2.3 billion housing infrastructure fund for up to 100,000 new homes in high demand areas and £1.4 billion to build 40,000 additional affordable home.
- New national productivity investment fund of £23 billion over five years for innovation and infrastructure;
- More than £1 billion for digital infrastructure plus 100% business rates relief on new fibre infrastructure;
- £1.3 billion investment in roads and to reduce traffic pinch points; and
- £450 million on digital signalling on the railways.
- Employee and employer National Insurance thresholds to be equalised at £157 per week from April 2017;
- Funding for 2,500 more prison officers;
- £390 million to build on our competitive advantage in low emission vehicles, plus a 100% first year capital allowance for installing charging points for electric cars;
- Extra £400m for venture capital funds through the British Business Bank, unlocking £1 billion of new finance for growing firms;
- Ban on pension cold-calling and pension schemes to trick people out of their life savings;
- Investment in research and development rising to an extra £2 billion a year by 2020-21;
- No plans for further welfare savings in this Parliamentary mandate;
- Carbon price support for oil and gas sector capped until 2020 and business rates reductions worth £6.7bn; and
- Doubling UK export funding capacity.
Just in case you are not fuly stat-ed out just yet, the magic number is £1,950,198,032,349. That is what the OBR predicted the national debt will reach by 2021.
Moreover, after studying the details of the Autumn Statement, the Institute for Fiscal Studies declared that households are facing the sharpest squeeze on living standards since at least the Second World War. The IFS Director, Paul Johnson said: “One cannot stress enough how dreadful that is. More than a decade without real earnings growth.”
Proving that there is always room for more (negavitity), The Resolution Foundation went even further. Its Director, Torsten Bell said that “This decade is now set to be the weakest one for wage growth since the 1900s.” Fabulous. I am just amazed that no Conservative has thought to dredge up some irony and comment that we are all in this squeeze together,
I will wrap up with a brief NI point of view: Northern Ireland is set to see a £250m boost to infrastructure spending for capital projects over the next four years, which will come from the Barnett Formula. The aim of this package is to give NI “greater spending power to boost productivity and promote growth.” Exactly how this money is spent shall be decided by the Executive. Finance Minister Máirtín Ó Muilleoir is expected to set out the Executive’s plan when he presents his Budget to the Assembly next month.
To keep with the theme of finding negavitity in positive places, it should be noted that the British government’s ‘City Deal’ programme is still yet to cross the Irish Sea. It was noted by the Chancellor that the aim shall be that every city in Scotland has a Cty deal, and this will get underway in Wales also. Nothing, however, for Northern Ireland. It would appear that our Executive was disappointedly caught asleep at the wheel on this one.