The Autumn Budget: A Wasted Opportunity

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If the last few weeks has taught us anything, it is that the Tories have no vision for our country. Rather than unveiling a new radical agenda in the Budget and subsequent Industrial Strategy White Paper, they have chosen to stick with our current broken economic system.

Photograph: Peter Byrne/PA

All pressure was on ‘Spreadsheet Phil’ to seize the opportunity after June’s devastating General Election result to paint a new picture of the Conservative Party. One that would be able to face outwards to younger generations and provide innovative solutions to the major problems facing society. Hopes for a pay rise for public sector workers, a long-term settlement for public services and meaningful action on housing were dashed. The age of austerity is far from over.

The headline figures are pretty dire: economic growth, revised down; productivity growth, revised down; business investment, revised down; people’s wages and living standards, revised down. For the first time in modern history growth is not expected to reach 2% in any year of the forecast period. Worst of all families are predicted to be £1,030 worse off than predicted in March this year, with the wage squeeze continuing way into the next decade. Wages are not expected to return to their pre-crash levels until 2025, meaning 17 years of lost pay growth. It is important to recognise that this is not in spite of Government policy, this is a direct result of it – only a radical change in direction can change our economic fortunes.

Austerity has failed. Tory targets have been missed consistently, with the deficit now set to be eliminated in the late-2020s – ten years and a double-dip recession after the 2015 target announced by George Osbourne in 2010. What have we got to show for it? A decade of lost growth and public services cut to the bone.

Britain’s poor economic performance is a direct result of our terrible liberal economic model – which divorces economic and social responsibility from Government and big business, forcing individuals to bear the burden of having to fork out for their own training, unaffordable housing and travel, despite facing falling real wages. It is based around a race to the bottom, that no one can win, built on the backs of workers rather than a collective path to prosperity.

Britain’s big long-term problem is productivity. Phillip Hammond is correct to recognise this, but hasn’t really realised how to deal with it. More investment in infrastructure and retraining schemes are welcome, but aren’t enough on their own. Similarly, continued Government cuts to schools and further education and lumping students with massive debts are actively undermining our knowledge base.

Put simply, companies aren’t investing in physical or human capital. This is a critical factor behind the effective squeeze on wages. If companies won’t invest by themselves, Government needs to take action to ensure that they do. This means incentivising such investments by increasing tax on profits that aren’t reinvested; increasing the availability of credit, especially to small and medium sized businesses, by increasing competition in financial markets and creating a public National Investment Bank, as well as introducing policies to disincentivise financial investments relative to productive assets.

Britain’s problem with productivity has been longstanding. British workers produce 30% less than French and 36% less than German workers on average over a given time period. This was where the Government’s new ‘Industrial Strategy’ was supposed to come in. The problem is that the Industrial Strategy is far from ground breaking. It focuses too much on small high-tech sectors: technological, pharmaceuticals and advanced engineering rather than going to the heart of the problem: tackling the increasing domination of the services sector, rebuilding our manufacturing base and upskilling the retail sector. The Government’s commitment to raise R&D investment to the OECD average by 2027 will simply see us fall further behind. We need to be ambitious and aim to match the investment levels of Austria, Sweden and South Korea of over 3% of GDP per year – a target achieved through significant public investment.

Housing was supposed to be the star of the Autumn Budget, with Phillip Hammond, accompanied by huge cheers from the Government benches, announcing £44 billion for investment in new housing, as well as scrapping stamp duty on homes costing below £300,000 or £500,000 in London. But on further inspection, the recent announcements will do little at all to help those struggling to get on the housing ladder. The massive spending package was later revealed to be almost entirely repackaged spending that had already been announced. In the documents from the OBR (Office for Budget Responsibility) that accompanied the Budget, they explained that the cuts to stamp duty will be matched by a 1:1 increase in house prices – with sellers clustering prices at top of stamp duty bands to maximise profits. The £10 billion boost to Help to Buy flush the market with more credit, driving prices further out of the reaches of eager homeowners.

A better alternative would be to really focus on the problem with the housing market – the massively inflated prices, which have rocketed away from bearing any resemblance to people’s wages. Policy-makers need to be tough on the main causes of financialisation of the housing market, cracking down on the availability of credit, as well as introducing restrictions on overseas investors and second-home ownership. As long as houses are seen as assets whose prices will always go up far in excess of wages, housing ownership will continue to fall.

Housing ownership isn’t everything and nor should it be. Action on rents was entirely missing from the recent budget, surprising given that by 2021 almost a quarter of Britons will be renting. The private rented sector is almost effectively unregulated, with little restriction based on the size of properties or the pricing of rent. Clearly, there is a lot to be done here, and the Conservatives inaction is driving more and more people towards Labour. Options here include, rent controls similar to those in Paris and Berlin; new standards on housing with government support to upgrade our country’s housing stock; bold action to challenge rogue landlords and ending the scandal of Buy to Let.

No solution to the private rented sector can exclude the social rented sector, which can be used as effective competition to bring down rents. This can be done by a massive public investment scheme in the creation of a new generation of council homes, by lifting borrowing restrictions on local councils as well as injecting money from central government. This can only work by ending ‘Right to Buy’.

Low pay Britain is a disgrace and it’s getting worse, especially as inflation rises faster than earnings. Almost 25% of workers are now stuck in low paying work. Again, little was done about this in the recent Budget. Phillip Hammond did increase the minimum wage by 30p per hour for those over 21, higher for those under, and provide funding for a higher than 1% pay rise for nurses. This isn’t bold enough action to counter the ongoing wage squeeze. Self-imposed guidelines by the Chancellor mean that those on the minimum wage, which is ever growing as a proportion of all workers, should be in poverty. 5.4 million people continue to earn less than the ‘real’ living wage according to the ONS. The Government must be bolder to boost pay packets and incomes, extending the National Living Wage to all workers, regardless of age, and increasing it to a ‘real’ Living Wage of over £10 an hour by the end of the decade. Other measures include the reintroduction of Wage Councils to set appropriate sectoral pay alongside actions to increase unionisation and collective bargaining.

Predistribution is not the only means of helping the least well off – welfare is also a key tool. Sadly, this budget will continue to see the most vulnerable being hit the hardest. Despite significant pressure from his own benches, the Chancellor refused to stop or even slow down the roll out of Universal Credit. The only offerings were reducing the waiting time from six weeks to five and small tailored changes to provide more support upfront. These stop well short of the proper reform universal credit needs, and will continue to see families loosing thousands of pounds. Single parents are the worst hit, with single-parent families with school-age children £6,000 a year worse off as a result of being transitioned onto universal credit.

The solution to this, and improving the safety net, are simple. This Government is consciously refusing to adopt them. Proposed reforms include: reducing the taper rate of UC (the rate at which the benefit is withdrawn as you earn) to the original planned 55% from the current 63%; scrap the two-child cap and the disgusting rape-clause; index benefits to earnings and double the value of child-benefit. This would see the overall welfare bill rise only slightly, but would see massive benefits to living standards and disposable incomes of the least well off.

Austerity isn’t over and thus there is no respite for our public services. Excluding Health spending, our public services are expected to face cuts of around 6%. Most departments will have seen a 40% real terms cut to their budgets since 2010. Phillip Hammond did manage to release £3.75 extra for the NHS until 2020, but this is less than half of that requested by NHS Chief Executive Mark Stevens, almost certainly meaning another crisis this winter. Schools continue to face cuts in real terms on top of the £2.7 billon already cut since 2015. Local Government cuts in the most deprived communities are approaching 50%, with decisions getting more and more difficult and more and more painful. The least Philip Hammond could have done would be to protect current spending in real terms, ending the cuts, and providing special relief for the NHS, schools and local councils – which face some of the biggest pressures.

Climate change may be the biggest threat to our society, but it hardly featured in the Budget – environmental policy is about more than just electric cars. When is this Government going to take the environment seriously? The proposals announced were very minor: a new tax on new diesel cars, more funding for driverless cars research and proposals for a tax on disposable plastics. Beyond this, it was mostly negative. Fuel duty continues to be frozen and work vehicles remain exempt from the new diesel tax. If we are to truly meet our COP21 commitments, we are going to have to do more, fundamentally changing our society and its relationship with the planet.

We have to start getting real. The solution isn’t electric cars, it’s about ending our obsession with everyone owning a car by investing in public transport. Beyond this we need to be looking at rapidly increasing our renewable energy production; boosting energy efficiency standards; properly insulating our houses via government initiatives and getting tough on emissions through the adoption of proper sin taxes, such as a Carbon Tax and reintroducing the fuel duty escalator.

Let us not kid ourselves, the recent Budget did little to deal with the elephant in the room, that of Brexit. The Government’s current approach to Brexit will leave us on a cliff edge of either no deal or alternatively a transitional deal on unknown terms. This chaos will be severely damaging to the UK economy, and few economists would dispute that, even those supporting Brexit, who often justify their decision by talking about a utopian long-run. The Treasury should have been bold enough to lead by example, being honest with the British public as to the true implications of their decision. The silence on the issue for fear of a public reaction is seriously dangerous. The £3.75 billion already allocated in preparation for Brexit is not nearly enough for all the infrastructure at the borders and in Whitehall required to deal with a hard Brexit and we should be upfront about that. The ‘Exit Bill’ is not the only cost of Brexit.

This Budget may have been enough to save ‘spreadsheet Phil’ from the chop, for now, but it has done little to challenge the problems facing the British economy. From growth, productivity and housing to wages, public services and Brexit, we have little to see from this Budget. For real results, we will have to adopt a dramatic change of course.

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