There is a well trodden formula to government finance announcements. The chancellor rumbles on about why the economy is heading in the right direction under his watch but doom would surely result if the feckless opposition were in charge. Then after the cleansing sorbet of one of those jokes only politicians find funny, they say ‘and today I announce we are dedicating [BIG NUMBER] to make sure that [GOOD PEOPLE] get [GOOD THING]’.
The opposition then say ‘once again [BAD THING] has [BIG NUMBER] to [GOOD PEOPLE].
None of this is very instructive. Today’s autumn statement was previewed as a rather more sober affair. The politics are obvious. A dry tone is as much a rebuke to the showmanship of the defenestrated George Osborne as to Labour. And it reflects sober times ahead.
In which context, let us look at three types of announcement we saw at lunchtime and ask whether they count as big numbers or not.
First, the growth figures. 2.1 per cent is expected in 2016, which reflects the 2 per cent forecast at the budget. As Kitty Ussher has previously pointed out the Office of Budget Responsibility rather undersold the strength of the economy in the spring but thought we were going to remain in the European Union. It seems one cancelled out the other. But we should not discount their prediction of 1.4 per cent growth in 2017, revised downwards from an earlier expectation of 2.2 per cent if we had remained in the EU.
These sad looking numbers are heavily driven by an expectation of lower investment, and it is worth pausing to explore them in the context of business sentiment. The purchasing manager’s index – which measures the shorter-term day to day spending intentions of businesses – has been in positive territory since a slight scare in the aftermath of June. But willingness to make real, longer term investment in growth is much less strong. For every business who expects their capital expenditure to go up, eight believe it will go down.
So businesses are ploughing on with the day job, but they are not making the big decisions about long term investment, suggesting problems down the road.
Second, let us look at the borrowing numbers. These are legitimately rather big. Fans of hubris may remember Osborne’s promise to address the deficit by the end of 2015. He rather quietly abandoned the headline austerity needed to do that four years ago (regardless of the political noise and the impact of individual spending decisions on services). Today the dovernment reconfirmed that the newer target of surplus by 2020 has been abandoned too. We are looking at at least another five years from that date, by which point we will have borrowed an additional £122bn caused as much by discretionary spending decisions as by forecast loss of income from post-Brexit drag.
To take 2020 as an example, Philip Hammond will have to borrow £18bn more to replace lost tax receipts and so forth as the economy slows, but he is choosing to borrow nearly another £10bn to cover choices he is making – not least easing capital spending by departments.
The third and final type of number on these occasions is the bonanza giveaway. Today’s most heavily promoted treat was £1bn towards broadband infrastructure. That sounds like a lot until you remember Virgin and BT have between them announced 9 times that scale of investment. For people who follow these things, the the £1bn announced in the March budget to plug the gap in business finance looked a little puny set against the £170-odd billion market it was supposed to boost. Government spending to fix market failures is rarely that material when you compare it to the scale of investment for whose supposed absence it is to compensate.
The support for low earners might be closer to bonanza territory, depending on who you ask. A minimum wage increase and taper relief for people receiving universal credit are accompanied by a fairly sizeable increase in the income tax thresholds, demonstrating again that the chancellor is more concerned with keeping consumer demand in the economy than with meeting his predecessor’s deficit targets. That is probably the right decision as we move into an uncertain period, though the government’s claims to represent the struggling classes sits uneasily against the £2bn cost of the income tax changes which could have been spent further down the chain.
But the macro picture today was a chancellor stepping away from the plans he inherited to a looser fiscal plan. An ungenerous person might say it is eerily close to the strategy suggested by the two Eds in the last parliament.
But hey, that is the thing about public finances. The same number can be big or small, depending how you look at it.
Allen Simpson is the chief operating officer of Labour in the City. He tweets at @allen_m_simpson
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