If the Autumn Statement was meant to deliver on the Prime Minister’s Chamberlainite ambitions for improving working class living standards while intervening to restructure the economy towards higher productivity, investment and exports, it has disappointed. Post-Brexit referendum downgrades to growth forecasts have increased borrowing and forced the Chancellor to push deficit reduction further out into the future. But there was very little in the way of extra support for low-income families and no increase in planned public spending on the NHS, social care or childcare. Meanwhile, tax changes – increases in the Personal Tax Allowance and higher rate income tax threshold – favour households in the top half of the income distribution.
The new National Productivity Investment Fund is the biggest spending item in the Autumn Statement, but at less than an average £5 billion a year, it is small beer when compared to the scale of the challenges the UK faces. The UK’s business investment is falling, productivity is catastrophically low, and we are not paying our way in the world. Huge regional disparities persist.
This is what the Office for Budget Responsibility report has to say on a number of these key issues. On business investment:
“The latest data show that business investment in the first half of 2016 was down 1.4 per cent on a year earlier. We expect that weakness to continue, with heightened uncertainty following the EU referendum causing investment to fall further in the second half of 2016 and for growth to remain subdued in 2017. Overall, we expect business investment to fall 2.2 per cent in 2016 and 0.3 per cent in 2017, before annual growth returns in 2018.”
“In March we revised down our productivity growth assumption, as we put slightly more weight on the post-crisis period of weak productivity growth relative to the pre-crisis historical average. Nothing in the recent data would lead us to change that judgement about the rate of trend productivity growth that the economy can ultimately return to. But we do expect uncertainty to reduce investment and productivity growth in the run-up to – and in the transition phase after – the UK’s exit from the EU. We have therefore made a further downward adjustment to trend productivity growth over the next five years.”
On the UK’s twin deficits:
“the concurrence of large fiscal and current account deficits has been a feature of the UK economy in recent years. This means that overseas investors are ultimately – if not directly – financing the UK’s budget deficit. This could pose risks if those investors’ confidence in the UK economy was damaged by uncertainty or changes in policy. That could lead to a sharper fall in sterling and a more abrupt demand-led narrowing of the current account deficit”
On household deficits:
“The persistence of a household deficit of the magnitude implied by our forecast would be unprecedented in the latest available historical data, which extend back to 1987. Other datasets extending back to 1963 also suggest little evidence of large and persistent household deficits, with the household surplus negative in only one year between 1963 and 1987. A household deficit of the size and persistence we expect over the forecast period might be considered consistent with the unprecedented scale of the fiscal consolidation and the extremely accommodative monetary policy upon which our forecast is conditioned. It nevertheless demonstrates that the adjustment to the fiscal consolidation is subject to very significant uncertainty, and alternative adjustment paths are quite possible.”
The Brexit vote could have led to a more substantial reckoning with these persistent weaknesses in the British economy. So far, it has not done so. A slow decline, rather than a sudden crisis, means that dominant orthodoxies in the Treasury have not been dislodged. The Chancellor may have abolished the Autumn Statement, but he has not changed the Treasury view.