Bleak UK growth forecast deals blow to Hammond
CHANCELLOR Philip Hammond’s hopes of injecting optimism into the economy were dealt a blow when the independent watchdog downgraded growth forecasts.
The Office for Budget Responsibility now predicts the economy will grow by just 1.5%, falling to 1.3% by 2020.
In a bid to show that the UK Government is serious about helping people get onto the housing ladder, he announced the abolition of stamp duty on the first £300,000 spent by first-time buyers. It is understood the measure will apply in Wales at least until April, when responsibility for stamp duty will be transferred to AMs.
The OBR once again dampened excitement, warning that the move is likely to mainly help people who already own homes by forcing up purchase prices.
Mr Hammond said the Budget would result in an extra £1.2bn going to the Welsh Government.
He further pledged there would be “negotiations towards growth deals for north Wales and mid Wales”.
Action was also announced to tackle concerns about the roll-out of Universal Credit, which combines several benefits.
The waiting time for new claims will be cut from six to five weeks.
Welsh Government Finance Secretary Mark Drakeford said the Budget was a “missed opportunity” to “lift the public sector pay cap and provide additional funding to give workers across the UK the pay rise they deserve”.
CHANCELLOR Philip Hammond’s bid to inject optimism into the economy with his Budget speech was overshadowed by grim economic forecasts.
The Office for Budget Responsibility downgraded its predictions of GDP growth for each of the next five years as a result of the UK’s poor productivity performance.
The OBR now expects to see GDP grow 1.5% in 2017 – down from the 2% forecast in March – 1.4% in 2018, and 1.3% in both 2019 and 2020, before picking back up to 1.5% in 2021, and 1.6% in 2022.
Mr Hammond also announced another £3bn to prepare for the impact of Brexit, with the promise that more cash would come if needed.
The Chancellor said negotiations with the EU were in a “critical phase” and while the pursuit of a transition deal was a “top priority”, the Government had to prepare for “every possible outcome”.
Mr Hammond announced that stamp duty would be scrapped for first-time buyers on properties worth up to £300,000, but the OBR said the change will mainly benefit people who already own homes by forcing up purchase prices.
Responsibility for stamp duty will be transferred to the Welsh Government in April.
The OBR forecast the change, estimated to cost more than £3bn by 2022–23, will result in as few as 3,500 additional home purchases a year, stating: “The main gainers from the policy are people who already own property, not the first-time buyers themselves.”
Treasury sources insisted that the measure, which will also apply to the first £300,000 of homes worth up to half a million pounds, would be a welcome boost to first-time buyers, with 95% seeing a cut in the amount of stamp duty paid and 80% paying none at all.
Despite suggestions that his second Budget of 2017 marked the end of the age of austerity in place during seven years of Conservative-led governments, Treasury aides stressed that the OBR believes Mr Hammond is still on track to meet his fiscal targets – including balancing the nation’s books by the middle of the next decade.
On the OBR figures, borrowing is forecast to be £49.9bn this year – £8.4bn lower than predicted at the Spring Budget – and will fall every year to £25.6bn in 2022-23 – which Mr Hammond said was “its lowest level in 20 years”.
As a percentage of GDP, debt will peak at 86.5% this year before falling to 79.1% in 202223 – “the first sustained decline in debt in 17 years”.
In other eye-catching measures, Mr Hammond announced:
a cut from six to five weeks in the waiting time for new Universal Credit claims;
a 4.4% rise in the National Living Wage from £7.50 an hour to £7.83 next April;
increases in the income taxfree personal allowance to £11,850 and the higher rate threshold to £46,350 from the start of the new tax year;
a freeze on alcohol duties, except for high-strength white ciders, and an extra 1% tax on rolling tobacco;
the cancellation of a planned rise in fuel duty;
higher road tax on new diesel cars which do not meet the toughest emission standards, to pay for a £220m “clean air fund” to improve air quality.
Mr Hammond told MPs that the Budget laid the foundations for a “global Britain” after Brexit
“where talent and hard work are rewarded, where the dream of home ownership is a reality for all generations, a hub of enterprise and innovation, a beacon of creativity, a civilised and tolerant place that cares for the vulnerable and nurtures the talented, an outward-looking, free-trading nation, a force for good in the world.”
But Labour leader Jeremy Corbyn condemned the Budget, saying it amounted to a “record of failure with a forecast of more to come”.
CBI director-general Carolyn Fairbairn said: “Against a sombre economic backdrop, the Chancellor today gripped the steering wheel on the UK economy.
“This is a Budget that balances support for people on squeezed incomes with vital action to help grow the UK out of austerity. But delivery is everything.”
On Wales, the Chancellor pledged: “We will begin negotiations towards growth deals for north Wales and mid Wales. And we’ll abolish tolls on the Severn Bridge, as promised, by the end of next year.”
No mention was made of Swansea’s proposed tidal lagoon but he said the Budget would result in “£1.2bn more for the Welsh Government”.
UK Labour leader Jeremy Corbyn called on Mr Hammond to put Universal Credit “on hold” so it can be fixed to “keep one million of our children out of poverty”.
He said: “The Chancellor’s solution to a failing system causing more debt is to offer a loan, and the six-week wait, with 20% waiting even longer, simply becomes a five-week wait.
“This system has been run down by £3bn of cuts to work allowances, the two-child limit and the perverse and appalling rape clause, and caused evictions because housing benefit isn’t paid direct to the landlord.”
Mr Corbyn predicted the Budget will unravel within days, warning “misery” will continue for people across the country.
He said pay was lower than in 2010 and wages were falling, adding that economic growth in the first three quarters of this year was the lowest since 2009.
He told the Commons: “It’s a record of failure with a forecast of more to come.”
Mr Corbyn claimed one in six pensioners is living in poverty, describing this as “the worst rate anywhere in western Europe”.
He added: “So it’s falling pay, slow growth and rising poverty, and this is what the Chancellor has the cheek to call a strong economy.”
The poorest tenth of households, he said, would lose 10% of their income by 2022, while the richest would lose just 1%.
He said: “So much for tackling burning injustice, this is a Government tossing fuel on the fire.”
Mr Corbyn added that personal debt levels were rising, with 8.3 million people overindebted, and the Government needed to back Labour’s policy of a real living wage of £10 an hour by 2020.
Working-class young people, he said, were leaving university with £57,000 of debt.
Labour MPs called the omission of defence policy from the budget “foreboding”, “disappointing” and “absolutely astonishing”.
The only mention of the armed forces came in reference to accommodation for personnel, a clause that Shadow Defence Secretary and Llanelli MP Nia Griffith said was “little comfort to forces families if they’re forced into the private rented sector”.
THE Chancellor’s Budget promised extra cash for the Welsh Government and talks on growth deals for north and mid Wales, but its silence on the Swansea Bay Tidal Lagoon deepened fears about the future of the project.
Philip Hammond’s announcement of £1.2bn in extra funding received a muted welcome from the Welsh Government.
Welsh Government Finance Secretary Mark Drakeford said that “£650m of the additional capital funding is in the form of financial transactions” which “must be repaid to the Treasury”.
However, the UK Treasury said it was up to the Welsh Government to decide how to use the funding and that it could reinvest profits from the financial transactions. It said the only scenario in which the cash could be paid back to the Treasury is if it is not spent at the end of the financial year – and that there would be a dialogue first.
Mr Drakeford described the Budget as a “missed opportunity” to “lift the public sector pay cap and provide additional funding to give workers across the UK the pay rise they deserve”.
The lack of any mention of the Swansea Bay Tidal Lagoon triggered widespread concern. The project won the thumbs-up of the independent Hendry Review at the start of the year, but the UK Government has yet to respond to the report.
Mr Drakeford said the “UK Government has failed Wales by failing to invest in key projects”.
Janet Jones, of the Federation of Small Businesses, said she was “dismayed that there was no movement on ‘big ticket’ items for Wales”, highlighting the lagoon and the lack of any move to devolve responsibility for Air Passenger Duty (APD).
Doug Parr, chief scientist of Greenpeace, feared that the tidal lagoon will not go ahead.
He said: “I think the lagoon’s over, actually, unless there’s going to be some kind of bespoke deal... I just don’t see how it’s going to happen.
“I don’t see that there’s any Government money on the table for doing this at all... I think it’s over.”
However, a spokeswoman for Tidal Lagoon Power said: “Back in its 2015 Budget statement, the Government recognised the significant potential of tidal lagoons for the UK and announced the start of contract negotiations for a pathfinder tidal lagoon at Swansea Bay. Two and a half years and one incredibly strong independent review later, we anticipate the Government will very shortly be in a position to conclude those negotiations.”
The message from Whitehall is that the UK Government’s position on the lagoon has not changed and it is considering the review’s findings.
According to a Treasury briefing: “The independent Hendry Review examined some of the complex issues and set out recommendations which the UK Government is considering in detail before responding. We think taking time to do so will ensure that any decision is made in the best interests of the UK and represents value for money for the consumer.”
The formal Budget document highlights planned upgrades to Wales’ rail network, stating: “The Government will invest in infrastructure upgrades that will provide direct services from Pembroke Dock to London via Carmarthen on new, state-of-the-art Intercity Express trains. Additionally, the Department for Transport continues to develop proposals for a number of potential rail schemes within Wales.
“This includes station improvements at Cardiff Central Station and Swansea...
“The Government will also consider proposals to improve journey times on the Wrexham-Bidston line and provide necessary funding to develop the business case.”
Secretary of State for Wales Alun Cairns gave an upbeat assessment of the Budget, saying: “The Chancellor has set out a powerful package of measures which will help shape Wales’ economy into one that is fit for the future.
“The commitment to formally enter into negotiations over a growth deal for north Wales as well as kickstarting early discussions for a growth deal for mid Wales are significant pan-Wales announcements. The move to improve rail services for businesses, workers and visitors from both sides of the Wales-England border, taken with the abolition of the Severn Tolls, is also a clear demonstration of the UK Government’s ambition to move the Welsh economy into the fast lane.
“The Welsh Government regularly calls for a boost to their capital budgets and the UK Government has again delivered funding that can deliver real change. They must now get on with the job of using the levers at their disposal to improve the lives of the people of Wales by building the homes our country needs, building the road network Wales deserves and make real progress in improving standards across our public services.”
However, Shadow Welsh Secretary and Neath Labour MP Christina Rees said the Budget displayed “contempt and disregard” for Wales, saying: “It is a shameful catalogue of missed opportunities, shot through with a callous disregard for those communities and people in Wales that most need support. [We] called on the Chancellor to end austerity and properly fund Welsh Government...
“He failed to do so. We demanded he provide new funding to lift the public sector pay cap in Wales that is hitting public sector workers year after year. He refused.
“We urged him to pause and fix Universal Credit, which is creating appalling levels of poverty, debt and desperation for families across Wales. He chose not to, instead tinkering around the edges with a broken system.”
Aaron Hill, of Community Housing Cymru, also pushed for a pause in Universal Credit’s roll-out, saying: “We’re pleased to see that the Government has acknowledged and committed to resolve the design flaws in the policy; however, it doesn’t go far enough and further improvements can still be made.”
Plaid Cymru Treasury spokesman Jonathan Edwards also had a downbeat assessment of the Budget, saying: “There was nothing in this Budget to drive up wages and nothing to push down the cost of living. For the second Budget in a row, economic growth, business investment and productivity have been downgraded.
“The result of the Chancellor’s stubborn insistence on sticking to his failed plan is ultimately felt in people’s pockets through lower wages.”
A Ukip Wales spokesman described the Budget as “a bit of a disappointment from a Welsh perspective”, saying the lagoon was an “opportunity for Wales to become a world leader in harnessing the vast potential of tidal energy”.
1 As a double act, Philip Hammond and Theresa May are not always convincing
In a risky flashback to the Prime Minister’s calamity-laden Tory conference speech, Mr Hammond announced: “I did take the precaution of asking my right honourable friend to bring a packet of cough sweets, just in case.”
Upon which Mrs May pulled out the said item and handed it to the Chancel- lor before the prop was left discarded by his side.
The whole thing was cringingly am-dram in execution and certainly put the ham into Hammond.
But then, given reports that the pair can barely stand being in the same room together, there probably was not much opportunity to rehearse the routine. 2 Mr Hammond tried to dump Fiscal Phil for Funtime Phil Clearly on a comedy roll, the chortling Chancellor was pumping out the one liners, as when he followed an education funding announcement with: “More maths for everyone!
“Don’t let anyone say I don’t know how to show the nation a good time.”
And he chuckled his way into unveiling a dramatic drop in growth predictions by saying: “This is the bit with the long economicky words in it.” 3 The Chancellor does not mind risking becoming the punch line for other people’s jokes either
Given that critics of Mr Hammond brand him a dour performer who lacks passion, it was brave of him to bring up “the scourge of plastic” early in his speech.
And when the Chancellor got on to the subject of “driverless vehicles” a raft of Labour hands launched into the air to point at the Government benches. 4 Brexit gets a bigger cash injection than the NHS in England Despite the boasts of Leave campaigners that EU withdrawal would be a boon for the health service, Mr Hammond announced he was pumping an extra £3bn into Brexit preparations, while handing another £2.8bn to the NHS.
This could prove tricky for Foreign Secretary Boris Johnson who was at times whacking his thigh with a rolled up order paper so vigorously in approval of Mr Hammond that some onlookers wondered if he would need to pop along to A&E after the speech as a result. 5 The future’s so bright, Mrs May cannot put her Chancellor in the shade?
Mr Hammond repeatedly insisted he did not want to look backwards, and given the widely held view that Mrs May planned to move him from the Treasury if she had not lost her Commons majority, it is easy to see why.
The Chancellor kept repeating the word “future”, perhaps in order to ram home to the PM the idea that he really still does have one. A view boosted with the noisy cries of “More!” from the Tory benches as Mr Hammond sat down after presenting himself as Phil the Builder and announcing a stamp duty cut.
The whole of Wales could be covered by economy-boosting city and growth deals worth billions of pounds.
It comes as Chancellor Philip Hammond in his Budget confirmed that plans for a growth deal for mid Wales are now under consideration, while a growth deal for north Wales, first announced last year, is formally being taken forward to the next negotiation stage.
Mr Hammond said: “We will begin negotiations towards growth deals for north Wales and mid Wales.”
Last month a report from the Assembly’s economy committee, chaired by Tory AM Russell George, called for mid Wales to have its own growth deal to complete an “investment jigsaw” across Wales.
City deals for the 10 local authorities that make up the Cardiff Capital Region and the four that make up the Swansea Bay City Region have already been agreed.
The city deal for the Cardiff Capital Region has £1.2bn of committed funding from the UK and Welsh governments, alongside capital borrowings of £120m from the 10 local authorities.
A £1.3bn city deal for the Swansea Bay City Region factors in its 11 proposed projects securing more than £600m in private sector funding.
Welsh Secretary Alun Cairns said: “The commitment to formally enter into negotiations over a growth deal for north Wales as well as kick-starting early discussions for a growth deal for mid Wales are significant pan-Wales announcements.”
And speaking earlier this month, he said an “awful lot of work” has been going on with the local authorities from Gwynedd right away across to the Chester border on the proposed north Wales growth deal.
He added: “We are keen for it to have a cross-border approach and we are pleased that the Welsh Government has responded positively on that basis.
“We also need to ensure that north Wales is in a position to react to the new Metro mayors in Manchester and Merseyside, so on that basis we have to be alive to the changing dynamic across the rest of the UK. So I want to see local authorities empowered in order to respond.”
David Morgan, policy manager in Wales of the Royal Institute of Chartered Surveyors, said: “RICS welcomes the Chancellor’s announcement of growth deals for rural mid and north Wales, which we called for in our Assembly election manifesto.”
Chris Sutton, lead director at property consultancy JLL In Cardiff, said: “The announcement by the UK Government of a consultation on a mid Wales growth deal is a welcome policy initiative.
“Growth deals have emerged as an alternative to city deals for nonmetropolitan areas and represent an important step in boosting support for the rural economy.”
Janet Jones, Wales policy unit chair for the Federation of Small Businesses (FSB), said: “We are very pleased to see progress being made on growth deals for mid and north Wales.
“These deals have the potential to unlock further growth and investment for regions of Wales, and we hope to see the Government working in consultation with businesses in mid and north Wales to do so.”