The November 2017 Budget may be remembered in the future for the abolition of stamp duty for first-time home buyers, but its long-term significance really lies in the dreadful growth forecasts that the Chancellor reported.
In a country where the growth rate has averaged 2.45% a year since 1955, it is now predicted that it will fall to a shocking 1.4% a year over the next five years. This was a Budget in which the Chancellor talked about the opportunities of the future without confronting its biggest economic risk. Brexit is the elephant in the economic room but it was barely mentioned.
At the heart of the Leavers’ 2016 campaign was the great lie that the UK has suffered economic disadvantage through its membership of the EU. If only, they argued, the UK could escape the straitjacket of EU regulation, the dead weight of the eurozone and the wage-lowering consequences of migration, then it could grow like never before. Look at all the opportunities we could have to trade with China and India, they cried, the countries where most economic growth would come in the future.
The only problem with this argument is that it has no basis in fact. It is fantasy land economics, as we have seen since the referendum with the eurozone growing twice as fast the UK. With Germany already doing three times Britain’s trade with China while inside the EU, it is not the EU that is holding us back but the structural problems in our economy including a lack of investment capital and low productivity.
The Leavers will try to explain away the miserable growth forecast for the next few years by referring to the Office for Budget Responsibility (OBR) downgrading its expectations for UK productivity. “That proves”, they will say, “that we are held back by EU red tape and by leaving we can create a low-tax, low-regulation economy that will grow faster”.
But that ignores the bitter reality that the OBR’s explanation for the UK’s lower than expected growth in the next two years is the uncertainty of Brexit as well as our dismal productivity. And the problems over productivity are not to do with regulation but the consequence of policies that are under UK control in skills, infrastructure spending, banking and investment.
This Budget was a clever piece of political positioning, designed to appease Hammond’s critics behind him on the Tory benches and in the press. But the Chancellor also wisely avoided claiming that there was a pot of gold at the end of the Brexit rainbow. He knows that forecasts of the pro-Brexit economist Patrick Minford, that the UK could gain £135 billion by following free trade policies after Brexit, are an illusion. Instead, the poorest families in Britain would lose hundreds of pounds a year because of the imposition of tariffs. The painful truth is that the UK could double its trade with China and triple it with Australia but still not make up for the half the trade in services we will lose on leaving the Single Market.
The Chancellor’s confident performance at the despatch box, his decision to go for a modest give-away Budget (including another £3 billion on Brexit planning) rather than promise more austerity, and his eye-catching measures on housing may well be enough to save his Cabinet seat.
But just because he avoided mentioning the elephant in the room doesn’t mean that it isn’t there. The sad truth is that far from there being a Brexit bonanza there will be a lot of misery and lost opportunity that will make us all poorer.
