The Cost of Brexit: Slower Growth, Higher Borrowing and Further Cuts
Hammond Acknowledges the ‘Just Managing’ But Doesn’t Help Them
The Autumn Statement was highly anticipated - the first after the Brexit referendum, the first for Philip Hammond... No more Osborne and his Long-Term Economic Plan.
We do have some changes from the old regime. Banning letting agents from charging fees to tenants for example will be welcome news to the growing number of those who are subject to their mafioso, wide boy methods, even though this was a Labour policy that was opposed by both Hammond and Theresa May.
Brexit, which this administration is blindly but doggedly implicating us in - despite nobody knowing what it really entails - means that the Chancellor is being forced to borrow a staggering £122bn more than expected whilst growth forecasts slip from 2% to 1% in 2017. The IFS warns of ‘dreadful’ wage growth in the years to 2021 and the Resolution Foundation commented that ‘’the rhetorical commitment to just managing families has not been delivered upon.’’
Six years of cuts to disability benefits and domestic violence refuges and the introduction of the bedroom tax as well as a raft of other measures justified in the name of the long-term economic plan has been for nothing. Instead, even though Hammond has pledged to borrow more, cuts to welfare remain without even giving us a target to judge austerity against.
Hard-working families have been replaced by the ‘Just About Managings,’ or the JAMs as they’re apparently known, in a piece of linguistic horseplay that masks and makes light of the incredibly acute economic environment in which so many struggling British people live day-to-day. The government acknowledges these people but this statement won’t even begin to remotely remedy their predicament. An increase in the national minimum wage, which Osborne rebranded the ‘living wage’, is still nowhere near that recommended by the Living Wage Foundation. It isn’t even at the level guided by the Low Pay Commission and cuts to benefits to those in work, while slowed, will still impact those who are already struggling.
Whilst the threshold for income tax has once again risen, the majority of this benefit will go toward better off families and in response, Ashwin Kumar, Chief Executive of the Joseph Rowntree Foundation said that ‘’spent otherwise, these funds could have made a significant difference to families who are just about managing.’’
This statement was a break, and I daresay an improvement from Philip Hammond’s predecessor, but, as expected, the impact of Brexit will be felt most acutely by those who are not only barely managing, but aren’t managing as it is. This government, despite accepting just how damaging Brexit looks set to be, still refuses to adopt a plan, let alone action to ensure that those who are barely coping as it is don’t spend yet another Parliament on the breadline.
The Sunny View of Brexiteers Hides Slower Growth and Higher Borrowing
This was the last Autumn Statement as we have come to know it. Chancellor Phillip Hammond has rightly claimed that ‘no other major economy makes hundreds of tax changes twice a year, and neither should we.’
The dramatic decision to end these fiscal upsets seemed only to enhance his theme of the need for financial stability. There were no gimmicks or the more political measures that were a staple of Hammond’s predecessor George Osborne as the Chancellor sought to calm the fears and anxieties that have marked the last few months.
This need for stability is, of course, in response to the economic fallout of Brexit. Despite the sunny views of Brexiteers it has now become clear that growth will be lower and borrowing will need to be higher, a surplus has become as unlikely as the 350 million bonanza promised to the NHS after we leave the EU. Debt has proven to be worse than expected, with borrowing set to raise the levels to 90% of GDP. Nevertheless, the need for investment is arguably more pressing as the government has quite rightly abandoned its rigid commitment to austerity.
Investment in a range of infrastructure projects in areas such as housing, transport and the regions should hopefully pay-off in terms of growth in the long term. However, this new approach is arguably an embarrassing mirror of Ed Miliband’s policies that were always portrayed as dangerous to the nation’s finances. The chancellor has swallowed his pride and that hyperbole and accept the current economic realities.
The supposed JAM’s (Just About Managing) were not as much of a central focus as was expected, although the continuing rise of the tax allowance and living wage as well as the freeze on fuel duty and change to the taper rate of Universal Credit will give some respite.
The main focus actually seems to be business with a big emphasis on productivity and creating a business-friendly environment. It was announced recently that the UK was for the first time in the international top 10 for most effective business tax systems: the measures in this statement were a means to maintain that reputation.
The need to make Britain attractive in the wake of Brexit has meant that there is a continuing race to the bottom in terms of corporation tax and new venture capital funds for growing businesses. Although there was some change to NI and continuing simplifications for the self-employed, the government has yet again missed a trick by failing to get rid of this regressive tax altogether by merging it with income tax.
Brexiteers ironically rage against ‘globalisation’ but as this statement proves, a country of 60 million people alone is going to be more not less subject to the economic forces of big corporations and larger economies and trading blocs. Phillip Hammond has had to make the most of the bad situation that the Brexit vote has forced upon him; he has on the whole achieved this.
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