Some good news for infrastructure and housing but otherwise this was a business-as-usual statement designed for a belt-tightened economy, says Freshwater’s Public Affairs team
Philip Hammond’s first Autumn Statement was always likely to be overshadowed by economic uncertainty following the UK’s decision to leave the European Union.
The forecast from the Office for Budget Responsibility (OBR) put numbers on this uncertainty by announcing an extra £122bn in borrowing over the next five years, of which around half - according to some analysis including the Resolution Foundation - can be attributed to Brexit. Compared to its spring projection, growth will be down 0.8% in 2017 and 0.4% in 2018. National debt is set to increase by £220bn by 2020. Analysis by the Institute for Fiscal Studies seems even gloomier, stating that workers in Britain are due to face the longest stagnation in pay for over 70 years.
In what was hardly a break in tradition from the days of George Osborne, the purpose of the Statement itself was again called into question by most of the chancellor’s ‘giveaways’ being briefed to journalists in advance in time for the morning papers, most of which focused on announcements to increase investment in affordable housing and ban letting fees for private renters.
While some of the mood music had promised a theme of new investment in public infrastructure, it is clear that the era of economic austerity remains the defining factor in the government’s fiscal policy. While Mr Hammond had already dropped his predecessor’s obsession with running a surplus on public finances by the end of this parliament, he nevertheless has delivered a Statement to balance the government’s books as quickly as possible - through three new, looser, fiscal rules of his own.
Borrowing is to be below 2% of GDP by 2020, public sector net debt must be falling by the same year, and welfare spending must be kept to a cap set by the OBR. Interestingly, since 1997, 12 fiscal rules have been introduced (prior to the announcement) and 10 of these have been broken. It remains to be seen whether Mr Hammond’s ‘rules’ (in name) are actually rules (in nature).
The majority of the increases in public investment that were announced came under the umbrella of the National Productivity Investment Fund (NPIF). After stating that it takes British workers 25% longer to complete a project than some of their European counterparts, the chancellor announced that an NPIF - with £23bn to spend over the next five years - will boost innovation and infrastructure to tackle the UK’s entrenched problem with productivity.
Housing will receive the lion’s share of this new money, with nearly £1.5bn to be spent next year, rising to over £2.1bn in 2020-21. This is in comparison to under £0.5bn on ‘future transport projects’ next year, including digital rail signalling and developing smart ticketing across the network.
In the last act of his first Autumn Statement, the chancellor announced his final (and only) surprise. From 2018, the annual Budget is to be moved from the spring to the autumn and a new spring statement will only respond to the OBR’s bi-annual figures. This brings the UK into line with most other countries which only have one major fiscal announcement per year.
So, while the chancellor said that he would not be ‘pulling rabbits out of a hat’ like his predecessor, he left the ultimate Autumn Statement bunny to jump out at the end.
Our commentary on the productivity puzzle and skills gap in the rail sector (previously published in Rail Professional) can be found here.
Freshwater delivers public affairs and strategic communications consultancy services for across private, public and not-for-profit sectors.