Economic Implications of Autumn Budget

Liberal Democrat Brexit Spokesperson Tom Brake commented:

“Instead of a bright future for Britain, Conservative plans will see a £65bn hit to tax receipts, slashed wages and higher borrowing.

The Government found £3bn to spend on Brexit, but nothing for our police or social care.

The Chancellor has completely failed to show the ambition needed to tackle the housing crisis, build the infrastructure the country needs or fix Universal Credit.”

And here is the breakdown of the economic costs:

1. £65bn hit to tax receipts: Tax receipts have been downgraded by £65.4 billion over the five-year period compare to previous forecasts from the March Budget. By 2021-22, annual public sector receipts will be £28bn less than previously forecast (OBR November 2017, link, p.13, compared with OBR March 2017, link, p.11).

2. Slashed wages: The OBR now expects wages to rise by just 2.3% next year, down from 2.7% previously. Pay increases now aren’t expected to hit 3% (the current inflation rate) until 2021, a whole year later (link, p.11).

3. Higher borrowing: Forecast public borrowing by 2021-22 has increased by £53 billion, from £134 billion to £187 billion (link, p.18).

4. Stamp duty: The OBR predicts the cut to stamp duty will increase house prices (link, p.53) and will only lead to an additional 3,500 first-time buyers (link, p.233).

5. Universal Credit: Additional funding for Universal Credit will not come into effect before January 2017, leaving many vulnerable families at risk of being plunged into poverty this Christmas.

6. Social Housing: Philip Hammond did not once mention the need to build more social housing or replace council houses sold off under Right to Buy. This is despite the latest figures showing that since April 2015, 28,011 council houses have been sold under Right to Buy only 8,113 replaced (link).

7. Delayed infrastructure funding: The biggest funding announcement today, the additional extra £7bn for the National Productivity Investment Fund, will only be provided in 2022-23 (link, p.28).

8. Police: No extra funding was provided for the police, despite a steep rise in violent crime and police forces facing a £413m real-terms cut in 2017/18 (link).

9. Social care: Social care was not mentioned once in Philip Hammond’s speech, and no additional funding was provided. This is despite more than a million vulnerable older people are already missing out on vital support that they need (link).

10. Public Sector Pay: Teachers and police officers will be left £3,000 worse off by 2020 due to the Chancellor’s refusal to lift the public sector pay freeze (link).

 

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12 Comments

  • Peter Martin 23rd Nov '17 - 8:50am

    ” £65bn hit to tax receipts”

    This indicates that the economy is going to be more sluggish than expected. Therefore, the government needs to spend more/tax less (according to political preference) to speed it up again. The other option of lower interest rates is no longer possible.

    Lower tax receipts shouldn’t be interpreted as ‘having less money to spend’. If tax receipts were higher than expected that could be a sign that the economy was overheating and therefore there could be a case for reducing spending/increasing taxes.

    On a macro level, things often work the opposite way around to what we are used to, on a micro level, with our own finances.

  • Peter Martin 23rd Nov '17 - 1:42pm

    @ Martin,

    If we’d had a vote for Brexit in 2008, no doubt you’d be presenting all kinds of graphs showing just how badly the economy has done as a consequence. Except we didn’t leave then and we still haven’t. Brexit hasn’t even started. So maybe there are other factors as work?

    A study from Cambridge University researchers – The macro-economic impact of Brexit – has concluded, that while there might be some short-run losses in GDP per capita, they soon recover as the British economy adjusts to its break from the dysfunctional European Union. There is no disaster scenario forthcoming!

    Not they they paint a rosy picture. We do obviously have problems. They say:

    “The economic outlook is grey rather than black, but this would, in our view, have
    been the case with or without Brexit. The deeper reality is the continuation of slow
    growth in output and productivity that have marked the UK and other western
    economies since the banking crisis. Slow growth of bank credit in a context of
    already high debt levels, and exacerbated by public sector austerity prevent
    aggregate demand growing at much more than a snail’s pace ”

    http://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp483revised.pdf

  • Peter,

    Your recycling a report that is twelve months old. Try to find something that is relevant to now now rather than something that was guessing the future twelve months ago (and doesn’t seem to have done a very good job at it). There are current reports that say everything will be fine are there not, try finding one and posting that link rather than dragging up something which in today’s fast moving times is ancient history.

  • Peter Martin 23rd Nov '17 - 4:16pm

    @ Frankie,

    I doubt you’ve actually read the paper. It’s quite prescient actually.

  • Peter,

    I expect you find it prescient because it agrees with your world view. However I’m inclined to agree with Richard Baldwin, Professor of International Economics at The Graduate Institute of Geneva. who said of the report

    Professor Baldwin went on to accuse Mr Gudgin himself of engaging in “policy-based evidence making” and “using evidence the way a drunk uses a lamp post – for support, not illumination”.

    http://www.independent.co.uk/news/business/news/brexiteers-favoured-economic-study-shot-down-by-other-trade-economists-a7519596.html

    As UK economic growth is continually down graded I again urge you to find some current reports (surely there are some) to support your argument, rather than yesterdays fish and chip wrappings. Time moves on so should you. I know skies are darkening Peter but surely there must be some current reports you could use to shine a way to the sun lit uplands.

  • Of course Brexit is going to have an effect. But it’s worth remembering that the economy was not great in 1970s and actually got worse after joining the common Market (productivity declining rapidly and inflation hitting 25% around about the time of the first referendum) or in the 80s when we were still in it or the early 1990s when inflation was much much higher. What I find amazing is the weird idea that some sort of golden age ended in 2016. The economic record has been no great shakes for decades bar the odd bubble here and there. But we’re supposed ignore the monumental lack very much that positive pre-2016 and blame a decade long stasis predating Brexit on Brexit. To me that’s either myopia or or some sort of “yes-but-no-but-ahh-well-no” obfuscating about the bushes.

  • Nonconformistradical 23rd Nov '17 - 9:49pm

    @Glenn
    “But it’s worth remembering that the economy was not great in 1970s and actually got worse after joining the common Market…”

    There were other issues impacting severely the UK economy during the latter part of the early 1970s Heath government – 1973 oil crisis resulting from the oil embargo against countries perceived as having supported Israel during the Yom Kippur war, NUM strike leading to the 3-day week and electricity blackouts…

    Oh – plus some pretty lousy volume-production cars…

    Don’t know how old you are but I remember it well….

  • Noncomformistliberal/
    I was just pointing out the economy hasn’t been that great for decades and that this tends to be obscured by Europhiles. The logic seems to be nothing bad that happened whilst being “in Europe” had anything to do with the EU but everything bad that happened before joining or after leaving is to do with not being part of the European project. That’s not to blame the EU, but simply to point out that evidence for rip-snorting sustainable economic success pre-2016 is pretty thin and mostly we’ve had bubbles in housing and finance, hence boom and bust. To me the effect of the EU either way is minimal, but I concede leaving it is not the same as never having joined it.
    I voted for Brexit mainly because I don’t support the concept of the EU and to make domestic politics more central. I’m a small islander.

  • Nonconformistradical,even!

  • What’s happening to our efforts to combat climate change with all this emphasis on Brexit? Perhaps once we move onto trade deals, there will be some capacity in the Government to deal with this and other issues. We do need more accountability at this critical time outside elections. At least we have and must maintain our free and independent media.

  • I have not followed the UK’s budget history closely, but I see no news here. The only remarkable difference is that the OBR has finally included more (not yet all, IMO) of the apparent structural weakness of the UK’s economic drivers in its modelling.

    While I agree that EU-membership has not been a panacea for Britains economy, Brexit is no logical conclusion from this. As a structurally imbalanced economy, the UK must settle for partial contributions to national wealth, however insufficient they might appear.

    To make my point, I am distinguishing between three different, but of course not unrelated, economic spheres:

    1. Highly skilled services in London and a few other centers is the healthiest part of the British economy: they have grown massively in the past decades, contributed enormously to funding the state, and are clear beneficiaries of EU membership and freedom of movement. As they are already also global leaders, Brexit provides no upside for them.

    2. Low-skilled services is the UK’s default-employment. Quantitatively healthy, but not providing a satisfactory living standard. Immigration (not only from the EU) is one driver of this sector, liberal employment rules and limited scope for productivity-gains the others.

    3. Industry is rather small, which is unfortunate because has one very attractive property: low skills can be employed rather productively by combining them with capital, which leads to higher wages. The renaissance of British industry in the last 40 years was almost entirely driven by European and Japanese capital and common-market integration. A hard Brexit (from the single market and the customs union) will eradicate it.

    The UK’s fundamental problem is the unfavourable mix of 2. and 3., made worse by Brexit. 1. is also impaired by Brexit and, due to the intangible nature of its products, rather mobile. 2. is already too large (and 1. and 3. too small) to fund satisfactory levels of public services. Austerity is therefore here to stay. 1. and 3. will become smaller as a consequence of Brexit, the default-employment in 2. will have less affluent niches around to feed from, limiting its growth and further depressing pay.

    To summarize: the budget reflects a gradual acknowledgement of continuing poor prospects made worse by Brexit.

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