A bit of drama hampered by a lousy script
BUDGET2017
AS well as being a longserving Member of Parliament, John Redwood, one of the fiercest supporters of Brexit, produces a regular investment letter for clients of the wealth management firm Charles Stanley. Interestingly, though still talking about Brexit, he is notably downbeat about the prospects for the UK compared with opportunities abroad. Like a conjuror, it pays to watch his hands rather than listen to what he has to say.
However, he is unusual in having doubts because the prevailing view among his Brexit colleagues is that there is nothing wrong with Britain that a bit of boldness won’t solve. This group has been telling Chancellor Philip Hammond that he should ditch any pretence at austerity in his Budget this afternoon and instead be ambitious and imaginative with plans to solve the housing crisis, the productivity crisis, the infrastructure crisis and the hard Brexit crisis all in one go — but without quite explaining where the money will come from.
These are of course very much the same people who at the time of the last election were rubbishing Jeremy Corbyn’s plans to increase state spending and pouring ridicule on Labour’s “magic money tree” — though all that now seems forgotten. Hammond’s response to this group who are, lest we forget, in his own party, has been akin to what one might have expected from British troops on the beaches of Dunkirk had they been told it was defeatist to look longingly out to sea for the rescue boats and should instead think positively, fix bayonets and boldly advance on the German tanks.
There are times when being realistic is a better bet than being optimistic. One of those is when you are Chancellor of the Exchequer in charge of the nation’s finances.
Hammond has troubles enough without being heckled from the wings. The growth rate in this country has plummeted since business started thinking seriously about Brexit. At the time of the referendum we were number one or two in the European growth league. Now we fight for bottom place with Italy. Greece is comfortably above us.
Business investment has also plummeted and is a serious concern for the Bank of England. Christmas spending is already down on the same time last year and poses a serious worry for the nation’s already troubled retailers who in many cases have to find the money for rent rises in January.
A survey of small business opinion by WorldFirst, a fintech company offering cheap foreign exchange transactions, found them concerned not only about the squeeze on domestic consumers but with serious concerns about world trade, inflation, the shambles of Brexit and something largely forgotten after last year’s rows, a potentially crippling rise in business rates. No seasonal cheer there either.
All this though is just surface noise. The real problems faced by the British economy run much deeper and are longer-lasting and even harder to shift.
Millennials are the first generation in at least 100 years to be significantly worse off than their parents. Across society only a handful of people are better off today than they were 10 years ago and almost half of UK households rely on some kind of state handout such as housing benefit, pension or income supplements to get through the month.
Levels of home ownership are falling among middle-aged cohorts and they are of course plummeting among the young. Personal indebtedness is fast approaching its pre-crisis peak. Poverty is rising fastest in households where there is at least one person in work. And there really is no money because — though the proportion of national income going in tax is as high as at any time in 30 years — we are still running a large budget deficit.
HAMMOND understand this and probably also understands that nothing he can do in the Budget today could make much difference in the short term. Threatening yet more measures against over-zealous corporate tax planning; making it tougher to claim the fiscal advantages of being selfemployed; threatening to extend the application of VAT; hinting he will freeze rather than index tax thresholds; taking another bite out of the insurance industry and messing with pension tax reliefs are all staple notions which get a regular outing around this time of year.
It is these things which get the headlines but they are not really important. Those who find themselves on the wrong end of the measures which do actually happen rather than simply being leaked, will no doubt beg to differ as they lick their financial wounds, but the sad truth is they are suffering in vain. The sums of money required by the Government are so great that grabbing an extra billion here and two billion there makes very little difference to the overall budget outcome. The only thing which will save us is much faster growth.
The Budget occasion is actually a time for political theatre rather than sensible economics, but that should provide space for a bit of vision, fine words about tackling the productivity shortfall, hope for housing and longterm programmes to improve education and skills. However, “Box Office Phil” is not the kind of nickname that gets given to a natural actor. Some are sympathetic as he blinks in the lights. Not many are impressed. But he does have a lousy script.
‘At the referendum we were number one for European growth. Now we fight for bottom place with Italy’