‘A reprise of austerity awaits’
Philip Hammond yesterday eschewed meeting his longterm fiscal objective for a short term, hoped-for, political one. The extra tax revenues the Office for Budget Responsibility (OBR) had calculated were now available could have put the UK government on course to achieve its balanced budget – but, as we already knew courtesy of the Prime Minister’s intervention in June, all of that extra money is to go to the NHS, plus a bit more to other budgets.
The result is that, instead of a real terms (ie, after stripping out inflation) reduction in day-to-day spending on public services of 3 per cent, which was planned for 2018-19 to 2022-23, there will now be a real terms increase of 4 per cent. That is quite a turnaround.
In many ways the most interesting question here is what would the government have done if the OBR hadn’t conveniently come up with the funds? Would it have raised taxes, given the NHS less, raided other budgets or increased borrowing?
Of course we’ll never know, but similar difficult decisions are coming down the line soon enough, thanks to an ageing population. Most commentators believe that ultimately it will be taxes that have to rise.
The main alternative to such a scenario is to “meet the challenge of productivity” as Mr Hammond kept repeating. But how? And why hasn’t he already done so? The OBR remains cautious on any return of productivity growth, so it is not a very solid alternative.
Meanwhile, people will be keen to know whether or not we are really seeing an end to austerity. My view would be that we have hit a lull, with better than expected tax revenues allowing for a bit of a giveaway – but, without a return to faster economic growth or a rise in the tax take, a reprise of some form of austerity awaits.
Furthermore, a return to most public sector services receiving year-on-year real terms budget increases of 2 per cent-3 per cent, as has often been the norm in the past, still seems a very long way away.
● John Mclaren runs the Scottish Trends website