Wednesday, 23 November 2016

Autumn Statement 2016 roundup

It's the end! Chancellor of the Excehquer has announced that a switcheroo is in order, concerning Autumn statements and Spring budgets.

Data provided by the OBR
National debt as a percentage of GDP is now expected to be higher

In the traditional Parliamentary address, Philip Hammond outlined a number of measures for Theresa May's administration. Aside from the stats and policies announced, Mr Hammond also chose to declare that budgets will shift to the Autumn, with a Spring statement; an effective mirror image of what we have at the moment. It enables Parliament to better scrutinise budgetary matters well in advance of the new financial year, which starts in April, Mr Hammond claimed.

Acoording to the fiscal targets from the March budget, the new statement fails on multiple fronts. The national debt was supposed to peak around now, but due to an extra £122bn worth of extra spending owing to Brexit and other matters, the debt burden as a percentage of GDP will continue to rise until about 2018-19.

Brexit uncertainly is likely to hammer growth next year, with just 1.4% pencilled in for 2017, along with 1.7% for 2018, followed by 2% or so for 2019 and beyond. This slowdown will likely put downward pressure on wage growth, and nudge up unemployment from its 11yr low of 4.9%. By 2020, GDP will be 2.4% lower than previously expected, as a result of this slowdown. That's billions of Pounds worth of output up in smoke, from a couple years of slow growth.

The Chancellor cited the so-called productivity puzzle affecting the UK economy at the moment. The UK economy has seen a large amount of job creation since 2010, and yet output growth remains slow and steady, with low wage growth compared to the boom years.

What the statement lays bare is the implication of Brexit; the public finances are going to face yet another Parliamentary term seeing little progress despite a large amount of pain. As the BBC's Andrew Neil pointed out during live coverage of the statement, despite the 2p cut in the taper rate in Universal Credit, people on said benefits will likely be worse off by 2019. The Chancellor painted the policy as an effective tax cut.

One of the casualties of the statement was the surplus target for 2019-20. Instead, by that financial year, the government will still have a deficit of £17bn. Of course, this is all based on the assumption of just two years of slow growth. On this basis, it's expected that a surplus won't be seen until the 2020-25 Parliament. If growth disappoints a whole lot more than expected however, the deficit could remain substantially larger, as it was during the Coalition government's austerity drive.

So maybe we're finally starting to understand the real meaning of Brexit. No, it's not that Brexit means Brexit or other kinds of doublespeak. Brexit means a hit to the domestic economy, and not just an unfortunate hit, but a preventable one. Between now and the next election, the cost of Brexit is expected to be worth some £10-15bn per annum for the government.

The OBR assumes that wages will be able to outpace inflation, despite the devaluation of Sterling. Even so, real wages won't surpass their 2008 peak until well into the 2020s, according to today's statement. That will make the 2010s something of a lost decade for UK workers, and Brexit has just made that lost decade that bit more painful.

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