Philip Hammond delivered his first, and last, Autumn Statement to the Commons on Wednesday. Not one for gimmicks or showmanship, Hammond presented what was largely a continuity budget statement, confirming schemes already announced in the March budget and recommitting to manifesto pledges. He even continued the tradition of deferring the deficit reduction target.
There are some notable departures from ‘Osbornomics’, not least of which Hammond’s confirmation that he will scrap the statutory element of the fiscal rule. Hammond’s Autumn Statement also relaxed Osborne’s welfare cap, following evidence that the Government is expected to exceed its welfare spending target by around 7%. The modest increase in the welfare cap will however fall far short of what Theresa May probably hoped for following her pledges to help ‘just about managing’ families, who can expect any benefits from the higher cap to be wiped out by a real terms reduction in earnings due to an expected rise in inflation. Predictions that the logic of the long-term economic plan would die at the hands of the May Government have failed to materialise; the long-term economic plan has just got longer term.
Underpinning every decision taken by the Treasury, including Hammond’s reticence to commit to higher welfare spending in line with May’s plans for ‘just about managing’ families is, of course, Brexit. The Office of Budgetary Responsibility (OBR) has forecast that borrowing is to rise by £122bn and that the UK’s economy will grow by 2.4% less than expected over the next five years. These forecasts, if they are to be believed, leave Hammond little room for manoeuvre.
This was a cautious Autumn Statement, leaving plenty in reserve for Brexit contingencies. Proponents of Britain leaving the EU may well feel vindicated by the healthy growth forecasts in comparison to other major economies at the top of Hammond’s statement, but others will be discouraged by the pervasive climate of uncertainty surrounding Britain’s future after Brexit.
The OBR’s economic forecasts, which underpin the Treasury’s budget decisions, were based on numerous assumptions on Britain’s future outside of the EU. For example, the OBR predicted an 80,000 a year reduction in immigration to the UK, at an estimated cost to the economy of £16bn over the next five years. The OBR has also predicted that the UK will continue contributing to the EU budget after leaving the EU, hinting at some level of single market access. These assumptions were necessary because of the lack of clarity surrounding the Government’s approach to Brexit negotiations and represent more a stab in the dark than a road map.
Of course, in the early stages of the negotiation process it is to be expected that the Government will want to play its cards close to its chest. At this point the Government is well within its rights not to share the details of its plan with the OBR. However, it would have been encouraging if the Autumn Statement had hinted that the Government knows something that the OBR doesn’t.
On the evidence of this cautious approach, it seems that everyone is just as much in the dark.