The Autumn Statement: No thanks Chancellor, Ed’s rumba is quite enough drama for now
by Gareth Brown, Associate
Britain is open for business. It’s just a line, and we don’t really know what it means yet. But if you’re a fan of that traditional game at weddings where everyone throws in a fiver to guess the correct quantity of “thank yous”, I’d recommend you pick a high number for this phrase in the Autumn Statement tomorrow.
For those of you wondering whether Philip Hammond’s first set piece as Chancellor will be next in line for a disaster in the like of Brexit, Trump, or Ed’s rumba (I am rooting for him, but he can’t credibly win the thing, surely?), I’m sorry to disappoint you, but it won’t be. It can’t be.
The reasons are numerous, but on a simple level there will not be enough content to invoke any drama. And it’s about time – we’ve really had enough thank you very much.
I’m going to digress slightly, mostly to engage in an act of self-indulgence with a rather geeky rant about the UK budget process, but also to highlight an important point about the expectations surrounding the Autumn Statement. The reason why it may not be full of elaborate policy initiatives is simple – it’s not supposed to be. I owe much of my angst on this point of procedure to Professor Colin Talbot at the University of Manchester, who has pointed out this anomaly on a number of occasions now.
The Autumn Statement is traditionally not the place for tax rises, or cuts in public spending, or policy announcements. It’s neither a spending review, nor a budget. As the name suggests, it is supposed to be a statement on the health of public finances, and an update on the progress of measures announced in the previous budget. It’s about forecasts and figures.
We owe Gordon Brown for this second Treasury annual set-piece, which has been abused by consecutive Chancellors as an additional opportunity to secure the front pages. Alistair Darling famously outlines in his book how he delivered six budgets – he was only Chancellor for three years. This should be a convenient excuse for Philip Hammond, but such is the nature of our politics just now that I doubt he will be afforded that luxury. The Financial Times reported in October that Hammond was considering scrapping the Autumn Statement, returning it to its former glory as a simple financial forecast, but not this time according to the Treasury.
Anyway, back to the way things are, rather than as they ought to be.
The first reason as to why you need not excite yourself too much about the Autumn Statement pertains to the situation we find ourselves in post-Brexit. Although the Chancellor will want to ease uncertainty, the ultimate fatigue in the economy, the truth is that he will only be able to do this by way of narrative and statements of intent. The fact is that until the Government has a greater understanding of its negotiating position in relation to Brexit, scenario planning is challenging. The timescales mean that we are more likely to see many of these big ticket issues addressed in the Budget, when the Government is more confident in its position.
The second reason revolves more around the Chancellor himself – a cautious and conservative (in the non-party political sense) operator, as demonstrated by his tenure as Foreign Secretary. Quite simply, he doesn’t do disasters. He will want to take the time (time which he hasn’t had to this point) to consider his vision for his time in the Treasury. His agenda will not be forced by political circumstance or expediency – see his more considered approach to the air strikes in Syria and the negotiations around the nuclear deal with Iran whilst in the Foreign Office. In addition, he knows that his view of post-Brexit Britain is not shared by many of his colleagues around the Cabinet table – including, possibly, his boss. He will need time to convince them. The Treasury’s course in the coming months will need to be carefully charted, and he won’t risk a rocky start.
Turning to what we can expect to hear, as the current political climate will not permit a simple financial forecast.
When times are uncertain, you can expect that some spending in one area is certain – infrastructure. Infrastructure, a flagship tactic of many previous Chancellors when the chips have been down. Building things creates employment (or mitigates unemployment), employment brings wages, wages bring spending, spending is good for the economy – you get the idea. Crucially, it gives the impression of action even when it is often the case that additional capital spending, subject to some clever accounting, is not “new money.” The Government has already trailed that there will be up to £15 billion of spending in infrastructure, with around £1.3 billion attributed to roads, funded through additional borrowing. Yes, that’s right – borrowing!
We can also expect Hammond to re-iterate his assertion that this Government will adopt a new strategy to reducing the deficit, albeit with the caveat that money is still tight. This will be another opportunity for the Chancellor, and indeed Number 10, to distance themselves from “Osbourne-nomics”. Hammond is reported to have always believed that the pace of deficit reduction in the previous mandate was too fast, effectively choking the economy – a position supported by his immediate scrapping of the surplus by 2020 target. Effective articulation of this point tomorrow is crucial for this Government, which is seeking to position itself as one which leaves nobody behind and, by default, conceding that its predecessor was not so hot in this regard.
We can expect some possible tweaks in a few fiscal levers here and there, with some possible action on those areas affecting the group I mentioned earlier – the “JAMs” (just about managing), as they’ve now been labelled – but nothing to write home about. For likely candidates, keep an eye on fuel duty, or some action on the cost of childcare. Investment in measures to improve productivity, such as R&D, have also been touted by Number 10 sources. If your business does something mildly innovative, it wouldn’t be unreasonable to expect some incentives to be even more so.
The elephant in the room will be the Office of Budget Responsibility’s forecast, which has been widely reported as sporting a £100 billion black hole in the public finances by 2020. We can expect the Chancellor to be honest about the challenges this will present, as an obvious consequence of slower than expected growth, increasing inflation and weak investment.
Although acknowledge the forecast (it’s not like he can avoid it), Hammond will want to remind us that it is just a forecast and, after all, it does not consider policy changes made by the Treasury over the coming years – an obvious weakness in any forecast. In addition, a positive spin will be required to give some semblance of confidence to the economy. This is where your money should be on a high number of “Britain is open for business”s.
Oddly, the outcome for the block grant in Scotland is likely to be a positive one – at least in the context of this statement. This is not a Spending Review, and therefore there is no change to the baseline “block” of funding that goes to the Scottish Parliament. Rather, it will be adjusted in line with spending changes in England through the Barnett formula. A slowdown in deficit reduction and an increase in spending in infrastructure is good news for Scotland.
The Government could do with a slow news day. The Chancellor will need to put a positive spin on a bad situation, but that doesn’t mean we will see a raft of new policy initiatives. On the contrary, the Government needs time to establish a position of strength. It needs to reassure, and steady the ship – not rock it further. You count on Philip Hammond to do just that.
Back to the question of whether to take an extended lunch break to listen to the Autumn Statement. Unless you’re in with a chance of winning lots of fivers from your colleagues (I’d guess a high number), then I wouldn’t bother. But if you do, you will be left with one very definite impression – Britain is open for business, whatever that means.