Philip Hammond, chancellor of the exchequer, has delivered Britain’s first major economic statement since the Brexit vote in June. Here our panellists give their take on what it means for the UK economy. Stay tuned for further updates, and follow @ConversationUK on Twitter.
Geraint Johnes, Professor of Economics, Lancaster University
The uncertainty created by the EU referendum left the chancellor with relatively little wiggle room. The Office for Budget Responsibility reduced its forecast of growth in the coming year from 2.3% to 1.4%, with adverse implications for tax revenues. Faced with this, the chancellor has produced a statement that is broadly responsible, prioritising measures that strengthen the resilience of the economy in a turbulent global context.
This entails a relaxation of fiscal constraints. Hammond has delayed both the return to fiscal balance and the time at which the debt:GDP ratio starts to fall. Some will perceive this as can-kicking, but it seems wise.
The chancellor has also announced major new infrastructure investment – in R&D, transport, digital resources and housing. This is welcome and should bring a boost to the economy.
A particularly important provision concerns the reduction in the Universal Credit taper rate from 65% to 63%, increasing the amount of in-work benefits people can receive. This could be seen as a response to the view that the referendum result reflected a call for change by those most adversely affected by austerity. But the adjustment will most help the least needy of those who receive Universal Credit. It is a measure for the “just about managing” more than the “frankly not managing”.
Michael Kitson, University Senior Lecturer in International Macroeconomics, Cambridge Judge Business School
A damp squib: economic policy needed a reboot and instead it got a light makeover. The economy is facing two big challenges: productivity growth is stagnant (“shocking” according to the chancellor) and the Brexit iceberg is looming.
First, Philip Hammond could have recast fiscal policy to allow significantly more public investment in the economy. Instead he merely acknowledged that the government will fail to achieve its fiscal targets. Monetary policy is running out of steam and an expansionary fiscal policy is one of the few effective options to deal with the challenges ahead. A preoccupation with “balancing the books” makes sense for a household, but not for an economy that is suffering from a severe lack of investment.
Second, there is the need for a coherent industrial policy to promote productivity growth. Instead we get a few piecemeal initiatives which are more symbolic than substantial. There is £23 billion over five years for a new investment fund. Yes, “every little helps”, but this is a paltry figure when you consider that the annual size of the British economy was £1,865 billion in 2015. The devil will be in the detail, but the investment fund is likely to only amount to around 0.2% of GDP. As a result, the UK will continue to lag behind the investment in innovation of most of its major industrialised peers.
The Autumn Statement was a lost opportunity to implement a major transformation in the economy’s productive potential and capacity for innovation – which are the best ways of ensuring future prosperity for “hard-working families”.
Investment and productivity
David Bailey, Professor of Industry, Aston University
The marked deterioration in growth forecasts and the public finances announced in the Autumn Statement meant that the government didn’t have many options in terms of fiscal giveaways to develop a wide ranging industrial strategy. But, as Hammond quite rightly stressed, UK productivity lags behind that of other countries.
To tackle this, he announced a “new national productivity investment fund” worth £23 billion which will focus on innovation and infrastructure. Investment in R&D will also rise by £2 billion a year by 2020. But this is small scale stuff.
There were some other, good small scale steps like boosting support for exports, more funding for venture capital for growing firms, and £390m for low carbon vehicles and connected cars. But whether Hammond’s pretty modest package stacks up as being able to transform UK productivity is surely questionable.
Rather than big transformational projects (which Hammond doesn’t anyway have the cash for), he favoured small-scale shovel-ready ones – like an extra £1.1 billion for English transport networks – which can deliver some small but quick economic wins.
Stephen Roper, Professor of Enterprise and Director of the Enterprise Research Centre, Warwick Business School
Addressing the UK’s productivity gap moved centre stage today as the chancellor announced a range of investments to make UK businesses more “resilient” and “match fit”.
The productivity challenge is significant and borrowing to address it is a gamble. As the chancellor indicated, it currently takes an average UK worker five days to generate the same productivity as German employees generate in four. It remains to be seen how effective the chancellor’s package of measures will be in addressing the productivity challenge. Public investment alone is unlikely to close the gap, however. UK firms too will need to significantly increase their investment which is perhaps unlikely given the uncertainties of Brexit.
Other aspects of the Autumn Statement will be welcomed by business. Confirmation of planned corporation tax reductions to 17%, business rate reductions and rural rate relief are all positive steps. Less welcome in some quarters will be the increase in insurance taxes.
Reflecting Theresa May’s comments in June on the steps of 10 Downing Street, Hammond also signalled his aim to “build an economy which works for everyone”. Cash for regional transport, city deals that inject cash into regions and £1.8 billion from the Local Growth Fund to boost infrastructure in English regions will help perhaps. But there was little here to directly address issues of inclusivity or boosting growth in the UK’s poorest communities.
Jonquil Lowe, Lecturer in Personal Finance, The Open University
Just-about-managing households will welcome the further freeze on fuel duty, worth £130 a year to an average car driver. The duty accounts for just under 58p per litre or nearly half of the current pump price. Less welcome is the rise in Insurance Premium Tax (IPT) from the current rate of 10% to 12% from June 2017. IPT is a bit of a stealth tax. Because we buy most insurance only once a year and providers invariably hike up premiums for existing customers at renewal, we tend not to notice this embedded tax. But it’s a great money spinner for the government with each 1 percentage point rise bringing in an extra £400 million a year.
Given current paltry returns, not-managing-at-all savers will welcome the announcement of a new National Savings & Investments savings bond next year, with an expected return of 2.2% a year (before tax) for a three-year term. However, they must wait until the March 2017 Budget for details. By then, inflation will be on the rise and interest rates may also be picking up – so we wait to see how attractive this bond will really be.
Peter Taylor-Gooby, Professor of Social Policy, University of Kent
The chancellor has announced a “cap” on welfare spending. This is an overall limit set for spending on all welfare benefits apart from pensions and those, like Jobseekers’ Allowance, where outside factors such as the state of the jobs market affects demand.
Comparing the rate of increase allowed for the cap with expectations of economic growth shows how the poor – in work and not in work – will lose out by some 2% a year, with some slackening in the run-up to the next election. This throws into relief the chancellor’s failure to do much to address the continuing impact of the legacy of Osborne’s cuts.
The 4% increase in the national minimum/living wage is helpful to low-wage workers. So too is the 2% slackening of the taper on the Universal Credit work allowance (which means that the low-paid keep 2p more of any extra pound that they earn). Together, this may halve the likely cumulative cut of about 4% in living standards for this group over the life of the parliament.
But these changes are incapable of addressing the serious problems of rising inequality and poverty resulting from the benefit freeze, tightening of eligibility for child benefit, removal of the family element and all the other cuts.
Michael White, Director, Real Estate Economics and Investment Research Group, Nottingham Trent University
The chancellor has announced a £2.3 billion housing infrastructure fund to build up to 100,000 new homes in high demand areas. London is to receive funding for 90,000 affordable homes and 40,000 new affordable homes are planned in England. These measures have to be welcomed along with the banning of letting agents’ fees.
But the chancellor’s plans to pilot a right-to-buy scheme for housing association tenants are worrying. This would reduce the supply of more affordable homes.
It is particularly at the lower end of the market that housing problems are most acute. Hence developing more affordable housing is essential if housing need and housing affordability are to be addressed.
The chancellor’s announcements are far from enough. Even if the new proposed units are delivered it will not be enough to meet demand for housing, regardless of tenure type. Experts suggest 240,000 new homes are needed to meet demand annually. This total has never been achieved in the past 30 years, leaving a significant shortfall. Nothing has really managed to replace house building on the scale achieved by councils in the 1960s and 1970s.
Karen Bloor, Professor of Health Economics and Policy, University of York
This time last year I expressed concern that the promised spending increases for the NHS could well be inadequate. Much has changed in UK politics in 2016, but the financial landscape for health and social care remains extremely rocky. The Autumn Statement did little to alleviate this – in fact there was barely any mention of NHS finances.
In the past year, NHS finances have worsened, with Trust deficits over £2.5 billion in 2015-16. This is affecting access to and quality of care: waiting time targets and four-hour A&E standards are increasingly missed.
Next year, NHS spending will increase in real terms, but in later years it will flat-line. Access to the government’s new “Sustainability and Transformation Fund” for hospitals depends on meeting finance and performance targets, and locally drafted plans to reorganise services are likely to meet with considerable resistance. Restructuring services is extremely challenging, even with increased spending – and it may be impossible without it.
Outside NHS England, finances are even worse. Public health spending continues to fall, limiting capacity to prevent illness. And strains on social care continue to worsen: older people accessing publicly funded social care have fallen by over a quarter since 2010 as a result of local authority funding constraints. We are failing to care for our frail elderly people outside hospital, and increasing pressures on the NHS as a consequence.
David Metz, Honorary Professor of Transport Studies, University College London
The chancellor has announced additional spending on road infrastructure of £1.3 billion, intended to cut congestion, tackle pinch-points on major roads and upgrade local roads. The aim is to make journeys quicker and easier for millions of commuters.
Transport infrastructure investment is the current fashion among all the political parties, who hope it will stimulate a sluggish economy and boost long-term economic growth in the regions. But there is too much wishful thinking about the scope for congestion reduction and the benefits of improving connectivity between cities. We know from experience that we can’t build our way out of congestion – any increase in road capacity in populated parts of the country attracts additional commuting traffic.
The chancellor has backed a recommendation of the National Infrastructure Commission to fund the next stage of development of an Oxford-Cambridge Expressway, worth £27m. But the commission’s main concern was the need to stimulate housing development if the potential economic benefits along the Oxford-Milton Keynes-Cambridge corridor are to be achieved. To this end, his plans to boost house building in areas of high demand are welcome.
Science and research
James Wilsdon, Professor of Research Policy, University of Sheffield
The confirmation of the £2bn of extra funding for R&D in today’s Autumn Statement is hugely welcome. Experience teaches us that it’s sensible to treat headline numbers like this with caution until there’s opportunity to read the fine print but it seems that this is genuinely new money, which is fantastic news. And it’s a real credit to John Kingman, chairman of UK Research and Innovation, and Jo Johnson, as science minister, that they have secured such a substantial boost from HM Treasury.
Some important details are still to emerge: how much of the new money will go to the research councils, and how much to the new Industrial Strategy Challenge Fund? How will the new challenges and priorities be defined, and with what mix of government, academic, disciplinary and user input? And will this extra investment be enough to offset the damaging uncertainties being created for the research community by Brexit?
But overall, this is an unexpected and exciting statement of intent. When the Prime Minister said this money was coming in a speech on November 21, I put some champagne on ice. Tonight, after the Autumn Statement, I’ll be cracking open the bottle.
Anna Vignoles, Professor of Education, Jesus College, University of Cambridge
The Autumn Statement confirmed capital funding for new grammar schools, despite the fact that the government is still consulting on this issue. Given the difficult financial situation faced by the education sector, this resource could be used to shield existing schools from existing cuts.
So far the proposals for the expansion of grammar school places have been met with strong opposition from both the education sector and the wider public. The evidence is quite clear about the potential negative impact the expansion of selective schooling would have on social mobility. Of course, if the consultation does not result in a large number of new grammar schools, this capital funding may still remain available.
The announcement of funds for research and development – which Theresa May outlined earlier this week, is to be welcomed of course. But given Brexit – and the implications of that for EU funded research grants – higher education still faces considerable uncertainty about research funding going forward. All in all, difficult times ahead for education, as for so many public services.