Opinion
24 Nov 2016 12:21pm

What the Autumn Statement means for politics

Ben Southwood of the Adam Smith Institute and Tobias Phibbs of The Fabian Society present right and left views and Philip Hammond's first (and last) Autumn Statement

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Caption: Tobias Phibbs and Ben Southwood present left and right views of the AS

If Philip Hammond's predecessor had been giving today's speech, it might have ended up rather differently. Hammond mostly kept to his promise not to simply list all of his new policy switches. And at no point did he devote long sections of his speech to new wheezes purely there to make laboured jokes at the expense of the opposition—the sort of populist gimmicks the last chancellor was famous for.

Hammond's first Budget suggests he's the man Britain needs

Ben Southwood

But what if George Osborne had still been in charge? If it had been George at the dispatch box, I suspect that, instead of the restoration of Wentworth Woodhouse, we'd have seen £7.6m go to funding dance lessons in Normanton, in honour of their most famous citizen, Ed Balls. I think we might also have enjoyed a bung toward London Zoo, beefing up safety around gorilla enclosures, funded, of course, by hiking the bank levy.

It's possible that he'd even have announced some new education policies, such as new courses studying internet memes like Pepe the Frog. And since this scenario requires a Remain win in the Brexit referendum, perhaps he would offer an olive branch to unhappy Brexiteers, by altering rules around the next closest thing - breakfast. Five pence in the pound on croissants should do the job.

Of course, we didn't see any of this in reality. In reality it was a reassuringly boring Budget, with spending changes only totalling a few billion here or there in the coming five years. He did take viewers through a mild rollercoaster of emotions when he promised to abolish the Autumn Statement, but clarified that this actually meant moving the Budget to Autumn, and creating a Spring Statement where he read out updated forecasts without making big tax changes.

His substantive policy changes were his ban on letting fees going directly to agents. My assumption, based on standard tax theory - incidence doesn't depend on who you make hand over the cash - is that this would have merely translated into higher rents and deposits. But investors clearly didn't think so: Foxton's stock crashed 11% on the announcement.

He also announced some £23bn of government-funded infrastructure and housing investment. Now the government really doesn't need to fund infrastructure or housing: we built our cities and railways with practically 100% private money before the 1920s.

What's more, countries with mostly privatised rail, trams, buses, and so on quite clearly have better systems - just look at Japan's gleaming systems. But given that planning rules make building near-impossible now, perhaps government infrastructure is the best we can hope for, and perhaps we shouldn't turn our nose up.

At least we can be glad that the government is now taking productivity, housing, and regional imbalances seriously. The most promising policy is its housing white paper, which proposes scrapping most height restrictions to give the leeway for a mass redevelopment of under-dense areas, with a tilt towards beautiful Georgian four and five-story terraces, as well as eight or nine storey Victorian mansion apartment blocks. This is the first time in decades that a government has addressed the housing crisis with something that might actually work.

But what might have been in the ideal Autumn Statement? What did I really want? The UK tax system is a mess, but in principle it needn't be too difficult to tackle. I had hoped for further corporation tax cuts, perhaps to 15%. Corporation tax reduces investment, and thereby long term UK living standards. I had also hoped for the abolition of stamp duty land tax.

Transactions taxes gum up markets because properties face higher burdens the more time they switch hands. It only raises around £7bn but generates liabilities worth hundreds of thousands of pounds at its top 7% rate.

There are all sorts of things one might want from a Budget, but above all, when dealing with the risk and uncertainty of Brexit, you want the sort of steady predictability that calms firms and underlies investment in Britain's future. He may not deliver my ideal polices, or amusingly baffling gimmicks, but Hammond's first Budget suggests he's the man Britain needs.


Ben Southwood is head of research at the Adam Smith Institute


Theresa May’s speech to the Conservative party conference was extraordinary in its break with liberal economic orthodoxy. It outlined the basis and rationale for moving towards a more sensible way of living with globalisation.

There was talk of an active industrial strategy to address our chronically low levels of productivity; support for the working class, including putting workers on boards; and a new political economy which rejected the ideological shibboleths of the libertarian right and rebalanced the country’s economy, generating growth outside London and the South East. This year’s slimmed down Autumn Statement, overshadowed by the largely unaddressed issue of Brexit, is a failure to make good on that promise.

The AS offers little relief to those who are suffering the brunt of the Conservatives' economic strategy

Tobias Phibbs

The result of the European Union referendum has either forced the government’s hand or tied its hands behind its back, depending on your political perspective. It also means that the OBR forecasts should be taken with an even bigger disclaimer than usual and are worth little until the future nature of our relationship with the EU is worked out. But however it turns out, significantly reduced growth forecasts have rendered the government’s deficit targets (which they were unlikely to reach even before Brexit) implausible and encouraged a (pretty modest) new investment strategy to boost infrastructure and productivity in key industries.

The result is more borrowing and debt, while the much-promised budget surplus will not be achieved in this Parliament and will have to wait until it is “practical” in the next one. Those who voted for Brexit to usher in a libertarian paradise will not be pleased.

For all the chancellor’s digs at Ed Balls’ expense, it is out of his script that Hammond now reads. While the much-vaunted £23bn National Productivity Investment Fund is inadequate and largely a rebranding of previous announcements made on infrastructure spending, it is nonetheless welcome - as is the chancellor's announcements on housing.

Some will view the ban on upfront letting agent fees as a gimmick that will lead to a rise in rent prices. The evidence from Scotland, where such fees were banned in 2012, shows that this is not the case; only one out of 120 agents reported noticing an increase in rent as a result of the ban.

Nevertheless, while offering some relief to those in the precarious rental market - and a dent in Foxtons' share prices - it does not come close to addressing the housing crisis. In order to contain house-price inflation we will, according to Civitas, need to build over 300,000 homes per year. The extra £1.4bn in grant funding for affordable housing is a start but remains insufficient.

In other ways too Hammond's statement falls far short of responding to the predicament we find ourselves in. Workers on boards was quietly scrapped – or made voluntary, which may well amount to much the same thing – by the prime minister in a speech to the CBI last week. The climb-down on Universal Credit offers meagre relief; workers will now lose 63p of their welfare, rather than 65p, for every pound they earn above the work allowance.

The misleadingly-titled National Living Wage will only rise to £7.50 next year, rather than the previously forecast £7.60. The highest tax threshold is to be increased to £50,000 while corporation tax is cut to 17%. The Resolution Foundation calculates that Hammond's measures reverse only 7% of the hit that the poorest half of households face.

These are not the priorities of a genuine "workers’ party" acting for the patronisingly titled "just about managing", despite the Conservatives’ recent rebranding.

What's more, there was silence on the health and social care crisis. Indeed, the one mention the NHS received was the repetition of the £10bn figure for the NHS by 2020-2021 which the Health Select Committee, chaired by Conservative MP Sarah Wollaston, have described as “incorrect” and more than double the real figure of £4.5bn. The Committee asked three questions in their letter to the chancellor – two on the availability of further capital resources to the NHS, and one on addressing the severe crisis in social care provision – and received no answers.

The Autumn Statement offers little relief to those who are suffering the brunt of the Conservatives' economic strategy. And for all the talk of the fundamentals of the economy being strong, the economy’s structural problems, most notably the skills deficit, regional inequalities, the trade deficit and low levels of productivity, persist largely unaddressed, while the biggest question mark of all – the nature of our new settlement with the EU – looms large over all forecasting beyond the immediate future.


Tobias Phibbs is a research and editorial assistant at the Fabian Society


 

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