If it ever truly began, it really does look like the era of austerity is over. After the savage cuts of George Osborne’s days, when current spending was slashed by an eye watering 0.2 per cent, Philip Hammond has decided enough is enough.
The borrowing forecasts from yesterday’s Autumn Statement were diabolical. A surplus is now not projected within the forecast period, meaning at least 21 consecutive years of budget deficits.
If the forecasts are accurate, the national debt will have increased by more than 500 per cent since Gordon Brown started to let rip on spending in 2001. Yesterday, Hammond signalled his intent to extend this period of gross irresponsibility into a third decade.
At first glance it doesn’t appear that there has been much massaging of the figures with asset sales or shifting revenues between years, as Osborne’s statements tended to do. So perhaps we should be grateful to the chancellor for laying bare the scale of the trouble we’re in.
There will be a significant increase in public sector investment which, by the end of the Parliament, will be fractionally higher in real terms than it was in 2010-11, but current spending will continue its remorseless path upwards, hitting £780bn in 2021-22.
The headline grabbing National Productivity Investment Fund (NPIF) goes to show that the chancellor is not as immune to the kind of gimmicks that came to define his predecessor as some had hoped: this is simply borrowing to spend by another name.
While it is some relief that his much-anticipated infrastructure splurge was smaller than expected, it will likely have little effect anyway. There isn’t much evidence that fiscal stimulus works in open economies with free floating exchange rates, and additional government borrowing comes from funds that would otherwise be available for private sector investment.
Besides, the government has a poor record of choosing worthwhile projects. One only needs to look at HS2 and Hinkley Point and their terrible benefit-cost ratios for proof.
There is a raft of other projects that are more worthy of support from taxpayers, not least improving our road network. Completing work on the M62 would be a good start and spending within funding envelopes such as Highways England could have been brought forward.
Furthermore, speeding up the upgrade of Pacer trains on suburban railway lines and electrification programmes on suburban routes into major cities would have very good benefit-cost ratios. But, as John Kay recently wrote, these worthwhile projects wouldn’t need a dignitary to open them so are bumped down the list.
Housing also falls under the NPIF, but why on earth is the government borrowing money to spend on housebuilding? It is the government that has got the country into this crisis by blocking development through the planning system. Only substantial relaxation of height restrictions and the reclassification of sections of the green belt offer a long-term fix.
A lot will be said about the impact of Brexit – that it means the chancellor had no choice but to borrow more money. Indeed, the OBR produced a counterfactual table which claims to show the impact of a Leave vote on the public finances. It means borrowing will increase by £122bn between now and April 2021, but less than half of this is attributable to Brexit.
One glimmer of hope might be that the OBR’s forecasts are usually wrong. Maybe we will see better growth than it predicts. And given the unreliability of forecasts, it is often therefore better to focus on the policy measures. Unfortunately there was little comfort to be found here either.
There were more gimmicks than the unusually slim document suggested, such as earmarking the proceeds of the “Tampon Tax” for women’s charities and the bizarre pledge of almost £8m to renovate Wentworth Woodhouse.
But as far as new tax cuts are concerned, it’s difficult to overstate how disappointing this statement was. There were four policy decisions classed as tax cuts. The biggest one, a freeze in fuel duty, will be a welcome relief for motorists, but they will be hit with the latest hike in Insurance Premium Tax.
The other three are microscopic: £15m a year in gift aid reform, £15m a year in fiddly Business Rates relief for broadband, and £30m a year worth of relief for museums and galleries.
If the chancellor truly believes that fiscal loosening is necessary to ride out upcoming economic turbulence, then he should have cut taxes for families and businesses instead of spending more money we don’t have.