He had little to say about long-term macroeconomic issuesby George Magnus / March 8, 2017 / Leave a comment
Chancellor Philip Hammond’s last spring Budget—this ritual is going to be merged with the Autumn Statement—was never going to be remarkable. It was full of gags (credit to the author) but it also included the contentious boast that the Tories are “the party of the NHS”—without anything of substance to back it up. It was, moreover, a few sandwiches short of a picnic when it came to the macroeconomic issues which will dominate following the next set-piece government statement: later this month the government will announce the triggering of Article 50.
So what did this Budget amount to? The leaks were to the point on business rates reform. There will be an additional £2bn of funding for social care over the next three years, and a Green Paper for longer-term solutions later this year. In what is a clear breach of the government’s commitments on tax and national insurance, there will be a rise in national insurance obligations for the self-employed from April 2018. The Chancellor also announced measures to limit the tax advantages of setting up a company and being paid in dividends, additional funding for selective free schools, confirmation of increases in the national living wage and personal tax allowances, and small-scale allocations off the already agreed £23bn infrastructure commitment to science research, disruptive technologies, transportation and broadband.
The Chancellor had said at the outset that there was no scope for unfunded spending commitments in the future, in view of the nation’s £1.7trn debt, its need to borrow for the foreseeable future, and the fact that the interest bill alone is £50bn a year, exceeding the spending on defence and the police combined. He was true to his word. The OBR’s Table 1 “Spring Budget 2017 Policy decisions” reveals that additional spending will amount to £1.7bn in 2017/18 and £665m in 2018/19, but that this budget will recoup virtually the entire amount in the three years to 2020/21. It was, as far as details go, a modest Budget with some incremental, long-term policies whose success—or otherwise—will be revealed over time.
The macro material did raise some interest. Growth has been revised upwards for 2017, from 1.4 to 2 per cent. Yet in each subsequent year to 2021/22…