The “new sick man of Europe” was how I described the UK in my recent New Statesman cover piece. Philip Hammond’s second Budget confirmed Britain’s undesirable status. The growth figures that the Chancellor revealed at the outset of his speech were stunningly poor.
GDP growth this year will be 1.5 per cent before falling to 1.4 per cent in 2018, 1.3 per cent in 2019 and 2020, and eventually rising to 1.5 per cent in 2021 and 1.6 per cent in 2022. For the first time in modern history, growth is expected to be below 2 per cent in every forecast year. (Meanwhile, GDP per capita will grow by just 0.9 per cent in 2017, then 0.8 per cent, 0.7 per cent, 0.7 per cent, 0.9 per cent and 1.0 per cent.)
The dismal figures reflect, above all, the UK’s terrible productivity performance. But Brexit, which has deterred investment and squeezed wages, has only worsened the outlook. Add to this the public spending cuts imposed by the Conservatives every year since 2010, and it is little surprise that the UK is now the slowest-growing major EU economy.
Hammond boasted that the national debt would finally fall next year (albeit from 86.5 per cent of GDP to 86.4 per cent) and that borowing would fall in every year. But let us recall that the Conservatives pledged to eliminate the deficit altogether by 2015. Hammond was forced to admit that borrowing would still be £25.6bn in 2022-23, with no surplus in sight (the OBR later revealed that, on current trends, one would be achieved in 2031).
After his disastrous first Budget, which forced one of the swiftest U-turns in history (over a National Insurance increase on the self-employed), a nervy Hammond played it safe. Mindful that his Brexiteer enemies would pounce on any mistake, the Chancellor sought to appease them by promising a further £3bn for “Brexit preparations”.
Indeed, in a reflection of the government’s weakness, this was that rarest thing: a post-election giveaway Budget (from a passionate “fiscal conservative”). Hammond heeded Tory backbenchers by again freezing fuel duty, announcing £1.5bn more for Universal Credit and promising £44bn of public funding, loans and guarantees for housing. And, at the close of his address, this most technocratic of chancellors produced a political treat: the abolition of stamp duty on all first-time buyer purchases up to £300,000 (though in an excoriating assessment, the OBR warned that the measure would actually inflate average prices for first-time buyers and enable just 3,500 new purchases).
There were no obvious land mines and Hammond will be satisfied if, unlike its two predecessors, this Budget does not disintegrate within a week. Owing to the weakness of Theresa May, who intended to sack him, Hammond can be confident of surviving another year in No.11. But though his political outlook has improved, nothing could disguise Britain’s parlous economic future.
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