Autumn Budget: Philip Hammond glosses over gloomy growth

 
Christian May
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Chancellor Leaves Downing Street For Budget Speech
This was Philip Hammond's third fiscal event (Source: Getty)

There's a wonderful clip doing the rounds of Australian MP Bob Katter answering a question on the country’s new equal marriage law.

He’s all in favour of it – “let a thousand blossoms bloom,” he grins and chuckles, before his facial expression changes into one of fury as he quickly adds “but I ain’t spending any time on it because every three months a person is torn to pieces by a crocodile in north Queensland.”

It’s a matter of priorities, for Mr Katter. The dramatic way in which he shifted topic may have served as inspiration for Philip Hammond yesterday, as the chancellor swiftly rattled off some gloomy growth forecasts before pivoting to talk of sunlit uplands and, believe it or not, peppering his speech with jokes.

Nevertheless, despite the upbeat nature of Hammond’s speech there’s no doubt that the anaemic growth and productivity forecasts hung over the House of Commons. Boffins at the OBR lay the blame for the growth downgrades on our woeful productivity level, which is not something that can be fixed overnight.

Without productivity gains, wages won’t start to take off in a meaningful way. Investment in innovation and technology as well as in the regions and cities outside London could yield results in the long term, but politicians have a shorter timeframe than the rest of us.

Read more: Tories rally behind "Tigger" Hammond despite OBR warnings

After all, there’s an election to win in four years. Perhaps that’s why ministers are more interested in demand-side reform than the thornier area of supply-side. Housing is a perfect example of this tension.

Changes to encourage demand can be enacted at the stroke of midnight with the flick of a pen, yet planning reform on any significant scale takes much, much longer. Hammond set out a bold plan to encourage denser, urban development and announced various reviews and commissions to increase the supply of land.

Alas, he stopped short of freeing the Tory party from its starry-eyed attachment to “the green belt” – which would have been a truly radical reform. On the subject of radicalism, stamp duty could have been abolished in its entirety, rather than just for first-time buyers. It’s a tax that distorts economic behaviour, clogging up the market and discouraging transactions. Still, if you’re a young person buying a house this week for under £300,000, Hammond has given you a Christmas bonus.

We shall wait to see how the wider package of mooted planning reform takes shape. Beyond housing policy, it was a Budget characterised by tweaks, nudges and adjustments rather than sweeping change.

Read more: Budget 2017: City economists react to growth downgrade

Economist Gerard Lyons has totted up no fewer than 69 new spending or tax measures “which suggests far too much micro-managing”.

This is a legitimate complaint and the tinkering sits alongside Hammond’s decision to take a break from austerity in favour of a £25bn spending spree. This cheered up a lot of Tory MPs, many of whom told City A.M. Hammond’s Budget was just what the doctor ordered.

Nevertheless, the underlying condition is one of stunted growth – if one believes the OBR’s forecast. Its been wrong before, as Roger Bootle of Capital Economics points out. Is it being too pessimistic?

Inflation is forecast to fall next year and the Bank of England’s agents expect wage growth to pick up, so consumers could yet surprise in 2018/19. Much of this is out of Hammond’s hands and nor can our economic fortunes be separated from the eventual outcome of Brexit negotiations.

But Hammond was cheerful yesterday, and so were his Tory colleagues. Let’s hope they’re still smiling next year.

Read more: Why the Budget was very good news if you're self-employed

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