Belfast Telegraph

No thrills from Chancellor as he places his focus on the future

 

By Richard Ramsey

The Budget speech may not have been the most exciting ever, but it was possibly the most future-focused. Indeed, Philip Hammond used the word 'future' 33 times at the despatch box, and focused heavily on measures relating to, for instance, first-time homebuyers, the technology sector, electric cars.

In contrast, there was no mention of pensioners and little to appeal directly to that demographic. This perhaps marks a new era of more youth-friendly Budgets.

Whilst there was a big focus on what the Chancellor said on the floor of the Commons, as always, what is buried within the spreadsheets accompanying the Budget document is much more significant.

Overall, here are some of key things to be aware of:

l Growth downgrades: As expected, the economic growth forecasts have been revised down. Indeed, this is the first time that the annual rate of growth for the entire forecast period has been below 2%. The economy is set to slow this year, next year and in 2019, before a modest pick-up in growth thereafter.

Northern Ireland has underperformed against the UK since 2008 and this is not expected to change in the years ahead. Indeed, Northern Ireland can expect to see growth of around or below 1% going forward. Relative to its peers, the UK economy finds itself in the slow lane for economic growth, but the fast lane for inflation. The economic recovery is anticipated to be shallower than had been forecast in March.

Productivity problems: The Chancellor placed a heavy emphasis on the future, but the future of the economy and the public finances are dependent on productivity.

Productivity has been the key thing that the Office for Budget Responsibility (OBR) has consistently been over-optimistic about. Over the last decade, the UK's productivity (output per person per hour) has only improved by 1%.

It seems that we have been working harder, but not smarter. This lack of significant productivity improvement affects growth, earnings and therefore government revenue and the public finances.

More borrowing: Before the Budget Philip Hammond was already in a fiscal straight jacket, but the straps have been further tightened due to the downgrade in the economic forecasts, not least productivity. The revision in the latter translates to £90bn of additional borrowing between this year and 2021/22.

However, offsets elsewhere mean relative to March the Chancellor is borrowing an extra £44bn between the last fiscal year and 2021/22. An additional £26bn is now pencilled in for the following year. As a result, there will be an extra £70bn of borrowing.

More spending: Given the fragile nature of UK politics, the Chancellor resisted being bold and introducing unpopular tax rises. Instead, he has embarked on more spending and eased the tax burden in a number of targeted areas. All of this has been funded by additional borrowing. The three key areas attracting more spend are Brexit preparations, the NHS and housing. The former is to receive an extra £3bn over the next two years.

The NHS will get over £6bn in new funding and it was stated that additional money would be made available for an NHS pay deal. This would see an easing in the current 1% per annum pay cap. Northern Ireland will receive an extra £660m over the next three years in the Block Grant.

Northern Ireland more prominent: It is perhaps unsurprising that Northern Ireland got more of a mention in this Budget than last. This included the additional money for an NI Executive to spend - though this still means that Northern Ireland's budget will continue falling in real terms.

We also heard the Chancellor refer to a city deal for Belfast and a review to be completed by the next Budget in relation to air passenger duty and VAT for hospitality and tourism.

The Chancellor joked with the Prime Minister about cough sweets in reference to her infamous conference speech. However, what was clear from the Budget was that the public finances remain no laughing matter nd productivity looks set to continue to act as a choke on the recovery. Back to the future, and austerity and Brexit beckon.

Belfast Telegraph

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