It was a hollow promise from the chancellor in place of a proper strategyby Jonathan Portes / March 13, 2019 / Leave a comment
Beyond the statistics, the impact of austerity has become increasingly visible to all of us, from the growth in homelessness and the use of food banks to broader pressures on schools, the NHS, social care and police. No one any longer seriously disputes that the quality of public services has been considerably degraded over the past years. Today in his spring statement the chancellor—just as parliament has done with Brexit—chose to kick the can. While largely sensible, the minor measures he did announce for housing and infrastructure don’t constitute a strategy.
Gordon Brown used to offer “prudence with a purpose”; Philip Hammond’s equivalent is the “deal dividend”; the promise that if we do secure a Brexit deal, this will allow him to “end austerity” in the public spending review scheduled for this autumn. This carrot is counterbalanced with a very big stick—that no-deal will lead to higher unemployment, lower growth and, implicitly, further cuts in public services down the line.
What this means is that the economic forecasts published today are essentially meaningless. In the event of no-deal, they will be torn up in weeks. Although the economic hit will make the longer term prospects for the public finances worse, balancing the books will be the least of Hammond’s worries.
Indeed, we know the Treasury is making contingency plans—alongside today’s announcement of tariff liberalisation across a wide range of traded goods—for emergency measures to boost demand and confidence, which will mean more spending and higher deficits in the short run. This is entirely sensible. The chancellor will follow Brown’s Keynesian playbook after the financial crisis, rather than George Osborne’s absurd pre-referendum scaremongering. But it’s not a long-term strategy. No-deal will be about crisis management.
By contrast, if there is a deal, then spending will rise slightly in the medium and long-run compared to existing plans, as the chancellor spends the recent modest increase in tax revenues. But calling this a “deal dividend” is of course absurd. As the government’s own analysis has shown, the reductions in trade and immigration that the deal will deliver will reduce, not increase, growth and tax revenue over the medium to long term.
Nevertheless, it is true that, assuming a smooth Brexit, the Office for Budget Responsibility has revised up its forecasts of tax receipts. But this isn’t…