Hammond's gamble

Today’s – and the last ever – Autumn Statement was a sober affair reflecting the new Chancellor’s more sober personality, and perhaps the challenging economic forecasts emanating from the Office of Budget Responsibility following the EU referendum.

Despite the former Chancellor having missed his deadlines for balancing the books on several occasions, the new Chancellor has studiously followed the pack and blamed Brexit on this particular occasion. Brexit may well have a hand in the Government’s decision to scrap the effort to balance the books by 2020, but it is likely also a taster of things to come: when a bit stuck, blame Brexit.

Economic and jobs growth remains robust in comparison with many other countries’ efforts, but in view of the uncertainty the Chancellor has not splurged. Instead he’s steadied the course and offered a few incentives in the hope of improving the perennial British issue with worker productivity, and how it will help to reduce disparity between London and the South East, and the rest of the country.

What we know is that infrastructure spending features heavily in the Government’s expectations about how to overcome that productivity gap. Money will be made available for transport schemes, and for R&D projects to make British innovation stay British, rather than be swallowed up by overseas tech companies. The national minimum wage and the tax threshold will also both rise and some of the more excessive benefit cuts proposed by George Osborne will be smoothed out.

This Autumn Statement speaks to Theresa May’s concerns about those struggling to make ends meet and ‘just about managing’. By focusing the limited capabilities of the Government at that end, she hopes to fill tomorrow’s newspapers with the message that she understands their concerns and is acting on them. 

With the Conservatives so far ahead in the polls, many might wonder why she wouldn’t take this opportunity to cut further and faster and get the challenging fiscal problems sorted well ahead of the election, scheduled for 2020, a la Osborne. The answer to that is twofold: firstly, nobody knows that she won’t call an election earlier – despite her protestations – and she will need to keep her powder dry for a pre-election giveaway that will please voters; and secondly because the ethos of her Government is different.  Anyone who has read her Chief of Staff Nick Timothy’s comments about making globalisation work for ordinary people will know that their aim is to make people better off, rather than cut Government religiously.

Finally a note on one of Hammond’s comments. During his speech, the Chancellor noted that the Government had managed to reduce spending from 45% to 40% of GDP over the course of the last six years, and still get better outcomes out of public services.  This is a key point of difference between the Conservatives and Labour.  Whereas Shadow Chancellor John McDonnell will likely see a reduction in spending as a failure in and of itself, Hammond and May are gambling that a more efficient State is possible, and one in which crime falls, education gets better and people live healthier longer lives.  We are at a mid-way point here, with spending still way higher than the tax take, but if in 5 years’ time there is a visible difference in the size of the state to no detriment of the people, this Government may just have achieved what it set out to do: create a public at peace with a genuinely low tax economy.  For them, that’s a gamble worth taking.

Harry Goodwin

Hill & Knowlton Strategies Search