The main takeaway from the chancellor’s Budget speech is undoubtedly the dire forecasts the OBR has reached on economic growth and productivity.
Growth forecasts for 2017 have been revised down a full 0.5 percentage points to 1.5%, before falling to 1.4% in 2018, and 1.3% in 2019.
Productivity growth has also been adjusted down, and is now predicted to stagnate in 2017 before rising by just 0.9% in 2018 and 1% in 2019 – increasing the gap between pre- and post-crisis trends in productivity substantially. Business investment has also been adjusted down and has turned out to be ‘much weaker’ than the OBR’s March forecast, contributing just 0.2 percentage points to economic growth for the next three years.
Meanwhile, consumer price inflation is expected to peak this year at 2.7%, before falling to 2.4% next year and 1.9% in 2019. This will continue to eat into wages – expected to be 2.3% between 2017-2019 on the OBR’s measure – which have been falling in real terms for the last 6 months.
The political implications of these figures are profound. Collectively, they indicate that austerity has locked in the damage caused to the UK economy by the financial crisis, setting it on a permanently lower-growth, lower-productivity trend than might otherwise have been expected.
Whilst the chancellor was keen to continue to blame the economy’s poor performance on the legacy left by Labour, the fact that the Conservatives have been given ten years and three electoral victories (of a kind) to fix this suggests that this line might not cut it with the majority of voters.
In the absence of any good economic news, the chancellor has attempted to dole out a few giveaways to strategically selected groups.
To young people, he has promised an under 30’s rail card, and the removal of stamp duty for first time buyers. Upon closer inspection, however, neither of these promises are likely to make up for the wage stagnation, consumer price inflation and house price inflation that young people will face over the next decade.
The rail card will only be applied to off-peak journeys, making it much less valuable than the current Young Persons rail card for 16-25 year olds, and the OBR has predicted that the increase in stamp duty land tax will actually raise house prices. It notes drily that "the main gainers from the policy are people who already own property" rather than first time buyers themselves.
There were some meagre giveaways on universal credit – including a £1.5bn package to ‘address concerns’ about its delivery and the scrapping of the seven-day initial waiting period. But there was nothing on public sector pay, despite widespread predictions that the chancellor would lift the pay cap. It’s worth noting that (as IPPR has shown) increasing public sector pay in line with consumer price inflation would generate an additional £800m worth of economic growth by 2019/20.
Overall, the Conservatives have done nothing to address their electoral issues with this Budget. Their support base is increasingly concentrated amongst wealthy, older, home-owning voters in rural areas, whilst the young, the private rented sector, and those on low incomes all swung towards Labour at the last election.
Unfortunately, this Budget will do little to solve the underlying structural issues that the UK economy faces set out in the recent report of the IPPR Commission on Economic Justice. Without an ambitious vision for the future of the UK economy, economic growth, and the Conservatives’ vote share, will continue to disappoint.
In the years since the financial crisis British politics has got scarier and scarier. Now we are presented with the choice between a chaotic, scandal-riven, and directionless Tories and an essentially communist-run Labour party. In times like these, a bit of caution and sensibleness are very welcome, and that's exactly what chancellor Philip Hammond's 2017 budget provided.
It's easy to complain when politicians don't adopt the policies that seem obviously brilliant ideas to wonks, but one must not look a gift horse in the mouth. Five years ago, no politician cared about, let alone understood, Britain's housing problems. Call it a crisis, a shortage, or whatever you want, there isn't enough in the places we need it, and it's being built faster in Doncaster and Rochdale than Oxford, Cambridge, or Milton Keynes—where so many people want to move that prices are skyrocketing.
Well, concerted efforts from groups like us have made politicians aware of the scale of the problem, the damage it's doing to our economy, our society, and their electoral prospects, and how we can fix it. Hammond clearly understood what we needed to do, and while some might wag their finger at his ideology impurity—funding councils to build houses, using public-private partnerships and aiming to reform planning—he's looking in the right places. Indeed, from the pre-Budget gossip it seems that the prime minister personally intervened to nix several smart schemes (such as removing green belt protection from tiny bits of land around existing stations).
It would also be easy to attack Hammond for lack of ambition. It's true, 100,000 homes in Oxfordshire by 2031 is a snail's pace compared to what is possible and desirable. But it's also a lot faster than we're expecting now, and what can be done in the face of overwhelming local opposition, when you're a minority government propped up by several flimsy majorities and facing socialists who occasionally achieve poll leads and who came close to winning an election that seemed sewn-up.
Empty homes are not a big problem—says every major piece of research into the issue, including London mayor Sadiq Khan's own commissioned study. But people don't believe evidence, they believe their lying eyes, and empty homes are a big political issue. Hammond, then, was restrained in "only" allowing councils to increase tax 100% on homes lying empty. Indeed, the current tax bias towards those homes is a mistake in the system that needs ironing out.
Similarly, with such a big lobby calling for restrictions on "land banking", the chancellor showed welcome caution in "only" calling for a review into the practice. He could easily have ploughed right in and announced some cack-handed crackdown right away. Only the chancellor's decision to cut stamp duty just for first time buyers seems like a real mistake. The problem with the tax is reducing mobility, not the cost it imposes on particular groups. A partial cut should be extended, as on its own it could make things more unbalanced.
But overall it's simply reassuring to see a piece of evidence that the entire world isn't going to pot when it feels so much like it is. Hammond's calm, simple—and yes, boring—Budget does the job. He understands the UK's two key problems of housing and productivity, and while he may not solve them this year, right now, in 2017, he's putting down the groundwork that might help us get over them in the next decade. For me, that does the job.
Grace Blakeley, researcher at IPPR and Ben Southwood, head of research, Adam Smith Institute