Jeremy Hunt’s Autumn Statement risks going too far, too fast
Rules, as they say, are made to be broken.
The so-called black hole from which only tax hikes and spending cuts can save us is, of course, created only by Jeremy Hunt’s golden fiscal rule – that the debt to GDP ratio must fall within five years, according to the (existing) Office for Budget Responsibility forecasts. Hunt may be wise to approach these rules more as general outlines than taking them as gospel.
For one thing, our various forecasters have a pretty miserable record of forecasting. The Bank’s failings on inflation are well-documented but the OBR has not covered itself in glory either. Using those projections as tablets of stone – and inflicting real damage to the economy as a result – is unwise.
The secondary issue is the static nature of British policymaking. The famed Treasury scorecard, which Chancellors use in the run-up to statements the like of which we’ll see today, has always been lacking in genuine dynamic analysis of changes to tax and spending. One calculation by the think-tank CEBR earlier this year reckoned the Treasury’s book analysis of the mini-budget was off by a cool £20bn, which puts the market reaction – now completely reversed, by the way – in some context.
In simple terms, the Treasury is very good at putting a price on things, but not very good at assessing the effect of them on the wider economy.
And the wider picture of this Autumn Statement is an ugly one. It is high streets already struggling, wallets looking less than full, and our infrastructure turning into a national joke. It is not clear why, with markets once again convinced that Britain is unlikely to go full low-tax-mujahideen, this is the time for a growth-sapping high-tax, low-spend fiscal policy.
The fear inside the City is no longer that Britain might not pay its debts, but that it’ll be stuck in recession for months longer than necessary and find itself with continued low-growth in the longer term. The medicine required, then, may not need to be as vicious as the former health secretary thinks.