Philip Hammond did his best to present an upbeat message in his first Autumn Budget, announcing more money for the NHS, a tax break for first-time homebuyers and ambitious plans to build more houses. But the discordant growl of the government’s fiscal watchdog drowned out the chancellor of the exchequer’s falsetto trills. The decision by the Office for Budget Responsibility (OBR) to downgrade prospective productivity growth slashed future revenues and cut the ground from under his feet.
The gloomy forecasts downgraded the Budget, which was no bad thing. British chancellors have become too fond of overhyping their big days out. Under two of Hammond’s predecessors—Gordon Brown and George Osborne—the main spring budgets became political theatre, providing an opportunity for them to strut the stage and flex their ministerial muscle. Not content with that they both grabbed a second turn under the lights by presenting what were in effect mini-budgets in the autumn.
Like Alistair Darling who did heroic service at the Treasury between these two overmighty chancellors as he contended with a financial and fiscal crisis, Hammond is less showy—one reason why he will hold just one Budget a year every autumn from now on. (There will also be a “Spring Statement,” though this will be "no major fiscal event" according to the chancellor when he announced the reform a year ago.) Unfortunately, however, “Spreadsheet Phil” came under pressure from Tory MPs to become “Box Office Phil” in order to bolster May’s woefully weak government. Despite his limited room for manoeuvre he felt obliged to try and please the troops.
Whether practised by believers or non-believers, turning budgets into political showbiz is bad for the causes of good government and a better-working economy. All too often attention-seeking announcements trip up. Hammond managed to avoid a repetition of Osborne’s “omnishambles” Budget of 2012. But the shine swiftly came off his crowd-pleasing abolition of stamp duty paid by first-time buyers on properties worth up to £300,000 (and the first £300,000 of those up to £500,000) when the OBR pointed out that existing homeowners would actually be the ones to gain as the tax relief was capitalised in higher house prices. It estimated that the change would result in only around 3,500 extra purchases a year by first-time buyers.
Budgets should revert to being budgets while chancellors should concentrate on their core job as finance ministers. Setting a realistic fiscal plan for the years ahead is a daunting enough endeavour in itself. Since public spending currently amounts to almost £800 billion—close to 40 per cent of GDP—there is plenty to occupy chancellors in allocating expenditure while setting realistic overall limits. There is also abundant scope to improve the design of taxes and to arrest the ever-growing complexity of the tax system. One useful reform that Hammond could have undertaken now that budgets are to be held in the autumn was to call time on Britain’s antiquated fiscal year, which starts in April, and to align it with the calendar year.
“Improving productivity calls not for hasty gesture politics on one day of the year but for soberly considered and costed policies”Since fiscal policy is integral to macroeconomic management—Hammond supported the economy by loosening the pursestrings, especially in 2019-20, Britain’s first year outside the European Union—budgets have to take into account the wider domestic and international economic picture, drawing upon the forecasts prepared by the OBR. But they should not be occasions for grandstanding new policies such as the plan to boost housebuilding with the objective of 300,000 new homes a year in England by the mid-2020s. Indeed Hammond himself conceded that achieving this goal was “a complex challenge,” not least since the standard villain of the piece—nimbyist planning restrictions by local councils—cannot be blamed for the fact that so many residential planning permissions remain unused, including 270,000 in London alone.
As the downgrade to future revenues caused by the OBR’s more realistic forecasts of productivity growth illustrates, new policies to tackle Britain’s economic weaknesses are vital. That is precisely why they should not get entangled in the short-termist and over-politicised budget process. The dollops of extra funding that Hammond announced for a variety of worthy-sounding projects such as £40 million to train maths teachers and £30 million in developing distance learning courses in digital skills may have heartened Tory backbenchers but they did not add up to a strategy.
The stagnation in British productivity is a decade-long problem. Shortfalls in British productivity compared with countries like France and Germany go back further still. Improving performance calls not for hasty gesture politics on one day of the year but for soberly considered and costed policies drawn up across government together with the creation of institutions needed to implement them. Only then should they be provided for in the budget. Once implemented they should be given time to settle down and to take effect.
By contrast British policymaking suffers from chronic instability, to which the overdramatisation of budget day contributes. Take skills policy as just one example. Good skills are essential to foster productivity as the economy becomes more knowledge-based. Yet over a quarter of the working-age population lacks basic numeracy or literacy or both. Overcoming these entrenched failings is undeniably hard. But it is not helped by an astonishing inconstancy in government policy towards vocational training and further education. A report from the OECD earlier this week highlighted the need for stability in this area, referring tactfully to the “considerable flux in skills policy in recent years.”
Far too often British ministers, taking their cue from chancellors, resemble impatient gardeners digging up plants that have barely taken root and replacing them with new ones that will suffer a similar fate. The government is poised to set out a new industrial strategy, but that will count for little if it is just the latest new new thing that will itself be cast aside before too long. Indeed the starting-point of a strategy that might actually succeed should be a searching and candid reappraisal of the myriad previous policies such as those for skills that have been undertaken and failed—and the institutional deficiencies deep within Westminster and Whitehall that permit this needless ferment.
The budget has become a showcase with a difference, putting on display not the good but the bad. The febrile approach to policymaking that it exemplifies afflicts far too much of government. Dethroning the budget is an essential first step in tackling the wayward decision-making of Britain’s rulers.
