This was the fourth fiscal announcement in a year and came with the usual suite of speculation, pre-announcements and international comparisons of the UK’s performance. The volume felt like it had been turned down a bit, on this occasion.
Pre-event commentary centred round the racing certainty of downward revisions to the OBR’s economic and fiscal forecasts. Just three months after their last report, it has become increasingly clear that the outlook for the global economy has become quite a bit gloomier.
The Chancellor has been alluding to this in a number of his recent speeches and so have we in our commentary on the state of UK manufacturing. And together with a rethink on the UK’s potential productivity growth over the period – the OBR’s forecasts were only going one way.
The OBR now expects UK GDP will grow by 2% in 2016 and 2.2% next year, down from 2.4% and 2.5% in their Autumn Statement projections. There is a more pessimistic view on all the components of growth this year, with downgrades to household consumption, net trade and government spending.
But a special mention for the colossal downgrade to business investment growth – in November the OBR had pencilled in growth of over 7% this year, but this had been slashed to just 2.6%. Massive yes, but as we’ve been banging on about for ages – a lot more likely.
All of this flows through to the public finances, where the Chancellor had to fess up to missing his debt to GDP target, but kept his commitment to get the public finances back into surplus by 2019/20 on track with some unspecified efficiency savings, which will be revealed (if it turns out to be necessary) nearer the end of this parliament.
And so to the policy detail. From a manufacturing perspective, we had been looking for a bit of stability, particularly on the cost front. All the global uncertainty has been weighing on industry and companies haven’t yet got to grips with the last bout of policy announcements that require money and admin resources (see apprenticeship levy in particular). We also had some specific asks around business rates, energy taxation and pensions.
In between some good gags, mainly directed at the opposition benches, there was some detail in all of these areas.
The initial response was one of relief; there were a lot of options that could have been bad, or even ugly for manufacturers at this point, but the Chancellor heeded warnings of no major new policies which add to costs already in the pipeline. However, the icing on the cake would have been setting these in the context of a broader strategy for industry which still remains a gap in the government’s armoury.
In that vein, it was disappointing that there weren’t further efforts to alleviate challenges for the steel sector, given the tally of job losses continues to rise.
And given other looming events, it was good to hear references to the importance of the UK’s relationship with the rest of the European Union.
And a few further ones from me
The Chancellor has found a Budget format that works – big up the UK’s economic credentials; identify some big themes that will play to his own party benches and hit home with the voters; announce a suite of largely revenue neutral changes that move the reform agenda forward, but keep the fiscal targets (basically) on track.
Another recently added variable into his formula are new hypothecated taxes. Generally not loved by economists, but now being used to support good behaviours by taxing activities that few people would strongly argue we should be doing less of. This makes for crowd-pleasing announcements, but it’s yet to be seen how long the line will be held on all the various ring-fences.
One final observation, is the Treasury’s choice of big themes. Today's were savers, radical devolution, fundamental tax reform and education for the next generation. Previously we’ve had productivity, makers, builders and pensioners.
A bit of consistency around the over-arching objectives of these fiscal announcements and other policy decisions would go a long way to offering up a bit more clarity on the priorities that are front and centre for government now and over the rest of this parliament. And it’s for that reason that we’ll keep making the case for a refreshed, overarching industrial strategy from this government.