Come What May: The Autumn Statement And Beyond

Come What May: The Autumn Statement And Beyond
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With the dust having settled a bit, what should we make of the inaugural fiscal event of the May premiership, the Autumn Statement?

From one level it was the story of some shockingly bad forecasts made by the government-created Office for Budget responsibility (OBR). Projections for growth for the next few years are down, so that the economy is forecast to be around 2.4% smaller by the end of the current Parliament than the Budget forecasts made as recently as March this year. The eye-watering debt-to-GDP ratio--reaching over 90% before heading down--and the outlook for real wages is very grim indeed with Paul Johnson, the boss of independent economic experts the Institute for Fiscal Studies (IFS), noting that we face more than a decade without real earnings growth, a situation not seen for at least 70 years.

Much of this was due to assumptions about what Brexit might do to the economy, although the OBR went out of its way to point out this depends on what the Government wants to negotiate (on which the OBR has no more clue than the rest of us) and what it might achieve in such negotiations.

It is therefore not a surprise that the keen Leave politicians and commentators decided to turn their fire on the OBR (and IFS) as just--apparently--making up the numbers, and being part of the 'Remoaner' brigade.

There were other things going on. One was that the OBR has finally got fed up with assuming that the UK's productivity performance--which drives everything about growth and prosperity--and which has been so dismal since 2008, will soon return to some reasonable, pre-crisis trend.

Instead, it has marked it down from the assumption used for the last few years--itself a miserable 2% in the March Budget last year (and 2.2% last autumn)--to just 1.8%.

Based on the experience of recent years, the OBR has revised down its assumptions about how much the UK economy takes in tax from every bit of growth it achieves.

The reasons for this are not totally clear. Many, including it seems Mr Hammond, believe it is to do with a shift to self-employment, real and 'designed', which has reduced the tax take.

Addressing this problem is crucial, not least if we are going to have resources to fund our public services, especially the NHS and social care which got almost no mention from Mr Hammond. Without more growth, the stress on public services and the bits of civil society that support them will become pretty intolerable in the not too distant future. If one wanted to read a little more into the Autumn Statement then it is this: some of the things said and announced broke through Tory shibboleths in a big way and may have opened up space for new policy thinking.

A Conservative chancellor announces the debt ratio is going to exceed 90% next year, an astonishing nine percentage points higher than the figure his predecessor George Osborne predicted for that year last spring. And what does the chancellor do about it? Nothing. In fact, he spends more.

So the party that won elections in 2010 and 2015 by attacking deficits and debt deniers has now given up the ghost. This is a big change.

Of course it will be welcomed by many economists who do not subscribe to Mrs Thatcher's view of the household economics axiom that 'you can't spend more than you earn' applies to the national situation. This marks a fundamental change in Tory thinking.

Take another area: industrial strategy. This was a phrase never mentioned by the Conservatives. Mr Hammond announced investment in supporting it.

Lastly, there was the move on Universal Credit. It wasn't much, and as work by the Resolution Foundation showed, it won't achieve much. But it was the Conservatives recognising the changes they have made to UC are turning it into a scheme which far from helping people out of poverty will just be a more expensive way of keeping them there. And they seem to care--at least a bit.

In all these areas, the rules, the mood, the tone has changed.

In the end, this may not lead anywhere; but with the uncertainty of Brexit and the unhappiness of much of the public with austerity and inequality, we may look back at Mr Hammond's first big moment and see it as a key pivotal point in British politics.

A version of this article was first published in The MJ.

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