Alison McGovern has five things you need to know about the autumn statement and what it means for Brexit Britain
‘One cannot stress enough how dreadful this is’. That was the verdict of Paul Johnson, head of the independent Institute for Fiscal Studies on the dire economic future that was revealed to us on Wednesday 23 November. The biggest announcement in Philip Hammond’s autumn statement seemed to be the abolition of the autumn statement itself, something he might as well have done earlier given that his lack of anything substantive to actually say relegated this first outing for the chancellor to a bit of a non-event. The real drama came courtesy of the Office for Budget Responsibility’s forecasts for the performance of the United Kingdom economy in the near future. It was not pretty reading.
Here are the five things you need to know about the autumn statement and what it means for Britain.
Brexit comes with a big bill
If George Osborne got one thing right during his tenure in No 11 it was his creation of an independent body in charge of making the big economic forecasts that shape the chancellor’s plans for the future. The OBR is not only an excellent resource for policymakers, but it stops any political interference that might obscure inconvenient facts from the public eye.
Their forecasts this time were bleak. Overall government debt is going to rise by £220bn more than previously thought in the next five years to nearly £2tn – an eye-watering 90.2 per cent of GDP. Government borrowing is set to be £122bn higher, meaning that Hammond has completely abandoned the pretence that he will close the deficit any time soon. The really interesting thing is that the OBR specifically estimated how much of that extra borrowing is down to Brexit, the answer is £58bn or £188m a week. Put that on your bus, Boris Johnson.
The real cost is even higher. A large amount of the government debt being racked up is due to the loose monetary policy of the Bank of England. The bank has been slammed by Brexiteers, but it is only this flow of cash that is sustaining growth in the economy and keeping the economy from crashing – as predicted before the referendum.
In short, we now know the truth. Brexit means more debt, more borrowing, lower wages, lower growth, less investment and a decade of low exports. It is a shocking list and the Brexit brigade need to take some responsibility for the damage they have caused to our public finances.
Guess who pays? Not the rich
Theresa May has made the big theme of her premiership the desire to help families who are ‘just about managing’ or ‘ the Jams’ as the media gleefully titled them. Given the extensive pre-briefing, everyone was poised to see what game-changing announcement the government was going to offer these hard-pressed families. We are still waiting.
A derisory change to universal credit may have appeased some Tory backbenchers, but it cannot disguise the fact that pre-planned cuts mean that it is precisely those with less cash who are going to be hit hardest. Research by the Resolution Foundation shows just how little this minor tweak is worth when offset against the vast cuts in the work allowance that are going to hammer struggling families. The IFS agrees, saying that ‘the big losers from tax and benefit reforms during this parliament will be low income families’.
But it gets worse. Sluggish wage growth and the rising inflation caused by the fall of the pound is going to cause one of the longest periods of living standards stagnation we have seen in a century. Average earnings are not set to reach 2008 levels until after 2020. This is one of the biggest stories to come out this week. Our dismal productivity (a result of underinvestment in skills and infrastructure) means that workers will see their pay barely rising while the price of everyday items, notably food, will rocket up due to high import prices. With no action to address this, we can dismiss the idea that the majority of Brits who struggle were ever the priority for the new government.
Politics still trumps economics
Who gains under this government then? The answer is the same as always, the well-off and the old. Compared to the colourful tricks and dazzling lights of Osborne’s Treasury, the Hammond operation looks a lot more grey and dreary, but that does not mean the new chancellor has neglected the political side of his job.
The autumn statement saw a continuation of the policy of prioritising groups who vote, namely those on higher incomes and older people. Hammond is going to follow through on the commitment to raise the personal allowance and the higher rate threshold – both of which massively benefit the wealthy. He will continue the pointless cut in corporation tax, which even business groups admit will not boost business investment. And he will keep the famous triple-lock on pensions. He is even going to go ahead with an outrageous cut in inheritance tax.
It seems there are no economic circumstances so dire that the Tories would consider asking those with the broadest shoulders to bear a little more of the burden.
No relief for public services
The autumn has been dominated by a series of awful stories about the state of our public services at the start of this Tory second term. Schools complaining they cannot support their most disadvantaged pupils. Prisons dangerously understaffed. Libraries closing. Childcare costs spiralling. A crisis in the social care sector and the National Health Service in the financial danger zone.
You might have thought that the chancellor would have used his extra fiscal headroom to try and plug some gaps, especially in the NHS and social care. But he had nothing to say on either, even extraordinarily hinting that he might stop ringfencing health spending in 2020 due to demographic pressures.
He is right to be worried about the consequences of our changing demographics, but underfunding our services is never the answer. We need to somehow find the money to pick the NHS up off the floor, we need to invest as much as we can in quality social care to relieve the pressure on accident and emergency units and we need to start thinking of childcare and adult social care as an essential part of the economic infrastructure of our country and a major enabler of a more productive economy.
Rabbits in the headlights
The culmination of these points is one terrifying conclusion. The country is on the brink of an extraordinary, self-inflicted, economic challenge for which we are totally unprepared. In their six years in office the Conservatives have failed either to close the deficit or to build the foundations for long-term prosperity.
They have done this while running public services into the ground and skewing the tax and benefit system even further in favour of the richest in society. Now they have caused a crisis that is set to hold our economy back for decades, and they have run out of road. No ideas for transforming our public services so they work in the modern economy. No plan to boost productivity and power growth. No strategy for bridging the yawning regional divides in our economy. And a complete void where the Brexit strategy should be.
This moment requires a comprehensive strategy for getting our economy moving again. In the absence of any ideas from the government, it is up to Labour to show the way. It is up to us to set out a plan to federalise the UK economy and spread prosperity more broadly. Up to us to show how spending on infrastructure and key services like social care and childcare can boost sustainable growth in productivity and wages. And up to us to map out how we can broaden our tax base, safeguard our key industries from Brexit and make our tax and benefit system work for everyone in our country.
One thing is for sure, never, ever again should we be subjected to lectures about so-called Tory economic competence.
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Alison McGovern is member of parliament for Wirral South and chair of Progress. She tweets at @Alison_McGovern
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Cartoon: Adrian Teal