Britain’s pile of government debt, which has been growing since the financial crisis, is expected to continue its upward path to reach a massive 90% of GDP in the financial year 2017-18.
By way of context, George Osborne based his entire austerity drive on a forecast of debt peaking at around 70% in 2013-14. Gordon Brown’s ‘golden rule’ was to keep it under 40%.
The Office for Budget Responsibility (OBR) also predicted a downturn in economic activity as global firms think twice about using Britain as a base.
OBR made a series of presumptions in light of Brexit: business investment will fall; higher inflation will reduce household consumption; the otherwise positive effect from higher migration will vanish; trade will reduce overall.
They also assume that the combined effect of this will reduce the rate at which the economy will grow from 2.2% to 1.4% in 2017. (And then from 2.1% to 1.7% in 2018). A combined short-term Brexit impact of 1.4% of GDP, even before the longer term impact is taken into account.
On future Brexit policy direction, the OBR state the government directed them to two already public statements which left them ‘little the wiser as regards the choices and trade-offs that the government might make during the negotiations – which will depend in part of course on the approach taken by those with whom it is negotiating’.
Even its own boss Robert Chote admitted to the BBC’s Joe Lynam: ‘It’s a uniquely difficult time to forecast.’ And he confessed his watchdog had no more information to make its judgment than the general public.
The reduction in growth rates in itself is not good news for the public finances, since it reduces the expected tax take. But add on top of it the Chancellor’s decision to spend a bit more and the impact of the Bank of England’s asset-purchase decisions over the summer, and Hammond’s predecessor’s fiscal rules are all blown out of the window.
The Chancellor appears to have used the mini Budget to give himself significant wiggle room in case the UK economy goes into reverse in 2017 and beyond.
The doubling of the export finance facility to make it easier for British businesses to export is important – it will help companies sell overseas, particularly in markets outside of the European Union.
UK firms, and overseas buyers, haven’t always been quick on the uptake with this, and measures will need to accompany the increase to ensure it is used effectively.
The pre-trailed announcement of investment in R&D will help to make up the shortfall as the UK’s research community loses its hefty share of European funding in this space.
Eagle-eyed commentators will notice an additional £412 million in funding for the three Whitehall Brexit departments, although we are no clearer on how they plan to approach the enormous task ahead.
The Chancellor was at pains throughout to declare that Britain is open for business, telling us that his big goal is to ensure Britain remains the Number One destination for business and to offer certainty and stability.
His commitment to a corporation tax rate of 17% by 2020 is a big part of this appeal, and the Prime Minister has signalled that they could go lower if the USA were to cut their business taxes too.
There were no details on the status of the City and financial services in any deal on access to the single market, no prioritisation of future trade deals, no mention of WTO status, and silence on immigration and access to labour.
The closest announcement to a ‘rabbit’ was that there will now be two budgets next year; the last one in the spring followed by the first autumn budget this time next year.
Ironically in light of the government’s upcoming challenge in the Supreme Court on giving MPs a voice in Parliament on triggering Article 50, the reason given for the change in fiscal event planning was for ‘greater Parliamentary scrutiny of Budget measures ahead of their implementation.’
Hammond explained this was to help provide certainty for businesses in their planning.
The other irony, however, is that OBR’s collection of assumptions includes one that Article 50 will be triggered by the end of March 2017 – a pretty bold assumption, given most pundits view that the government will lose their appeal on the Miller case at the Supreme Court and that at least some element of delay will interfere with proceedings. Thus providing more than a little uncertainty for businesses elsewhere.
These extracts are taken from this week’s analysis of the Autumn Statement by: George Pascoe-Watson, senior partner at Portland and former political editor of The Sun; Kitty Ussher, Portland’s chief economic advisor and a former Treasury minister; and Victoria Dean, head of Portland’s Brexit Unit and former head of the FCO’s European directorate. You can read our analysis in full online.
Measurement and evaluation