The Resolution Foundation’s analysis of the spring statement is now online, here.
I’ve culled a few charts, showing why Britain isn’t out of the woods yet:
The chart above shows that Britain won’t reach a balanced budget – a key government target – until 2027.
So to get there sooner, as the government wants, either spending has to be cut deeper to the bone (or through it?), taxes go up, or the economy outperforms expectations (which is Hammond’s plan).
Resolution also points out that households face a tough future:
Ten years on from the start of the pay squeeze, recovery remains seven years away. And the vast majority of the large working-age welfare cuts announced back in July 2015 are still to bite, with low and middle income households likely to fare especially badly over the next two years. Despite some near-term improvement in yesterday’s forecasts, the UK remains in the midst of a squeeze on incomes that is set to last longer than the one experienced immediately after the financial crisis.
Nick Macpherson, the former top civil servant at the Treasury, is also racing to the barricades to save the 1p and 2p piece.
Tabloid fury over Hammond’s war on coppers
Given it was a such a short speech, Philip Hammond will have hoped to avoid gaffes and blunders yesterday.
But several of Britain’s newspapers have blasted the chancellor this morning, over the Treasury’s new consultation on whether to abolish 1p and 2p coins, along with £50 notes.
The Daily Mirror have splashed on the plan, warning that charity donations would suffer if people can’t drop spare coppers into a collection tin.
Shadow Civil Society minister Steve Reed told the Mirror:
Cash is the most popular way for people to donate to charities, and much of that comes in small change like 1p and 2p coins.
The Sun have dubbed Hammond a ‘pennies pincher’, urging readers to help ‘save our coppers’.
Hammond has also upset the Daily Mail, which vents:
They may be annoying small change to the better off, but others who count every penny will not thank you when traders inevitably round up those 99p prices.
This looks to the Mail like a PR disaster in the making.
Resolution: Hammond faces faces tougher choices and tax rises
The Resolution Foundation is hot off the blocks this morning, with its full analysis of Philip Hammond’s spring statement.
And the verdict isn’t great — the think tank warns that the Chancellor won’t eliminate the deficit unless the economic forecasts improve, or he raises taxes.
Resolution also aren’t impressed with Hammond’s claims of feeling ‘Tiggerish’. They point out that the economic forecasts are little better than the ‘bloodbath’ in last November’s Budget (which was packed with weaker growth forecasts and higher borrowing).
Britain is still expected to grow slower than the eurozone over the next five years, while real earnings are still not forecast to return to pre-crisis levels until 2025.
Hammond’s upbeat performance yesterday sparked some reports that austerity might soon be over. Resolution, though, point out that plenty of government cutbacks are heading out way already — including a swathe of working age benefit cuts.
Torsten Bell, Director of the Resolution Foundation, said:
With the elimination of the current deficit and debt falling next year, Britain is set to pass two major milestones on its long austerity journey since the financial crisis. But the end of the tunnel is still a decade away, and significant obstacles remain before the final destination is reached.
“Steering past these obstacles will require the Chancellor to make some tough choices that he avoided setting out yesterday lest he spoil the upbeat mood. Delivering significant reductions in debt while softening currently planned spending cuts to come will require either tax rises or for Britain to heed the Chancellor’s call to ‘beat the forecasts’. Planning for the former, while hoping for the latter might be a sensible approach for the years ahead.
Here’s the key findings from Resolution’s analysis:
- Welfare cuts – Just a fifth of the over £10bn of welfare cuts announced in 2015 have been implemented so far. The coming year (2018-19) is set to be the second biggest single year of welfare cuts since the crisis (after 2012-13) at £2.5bn. The scale of additional cuts will grow in 2019-20 to £2.7bn as more families are moved onto Universal Credit.
- Inequality and income – As a result of policies announced since July 2015 the poorest third of households are expected to be an average of £745 a year worse off. In contrast, the richest third are forecast to record an average gain of £140 a year. Projected real household incomes are a staggering £1,400 a year lower than forecast back in March 2016.
- Departmental cuts – After a short lull in cuts to day to day departmental spending next year, they are set to return from 2019-20 onwards. These include a 12 per cent cut to the Ministry of Justice budget over the next two years, while central government funding of local government is set for a 19 per cent fall. In contrast, DEFRA is set for a 21 per cent ‘Brexit bonus’ next year.
- The next spending review – Choosing not to feed higher inflation through to day-to-day departmental spending in the period beyond the current Spending Review has contributed to the Chancellor’s better borrowing outlook in 2022-23. However, it also means yesterday’s statement marked a further small real-terms spending cut. As a result day to day departmental spending per person in 2022-23 is projected to have fallen by 17 per cent since 2010.
- Meeting the fiscal objective – The Chancellor is still forecast to be borrowing 0.9 per cent of GDP in 2022-23. Eliminating it by 2025-26 as originally intended would require a speeding up of departmental spending cuts in the next parliament. The OBR says that even delaying it until 2027-28 would require per capita departmental spending to fall in real terms in each year.
The agenda: Spring statement reaction; Draghi speaks
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we’ll be mopping up the reaction to Britain’s first-ever spring statement. Economic experts have been crunching the numbers overnight, working out what the latest forecasts mean for the UK economy.
The Institute for Fiscal Studies releases its verdict this morning (10am), and other think tanks, research groups and City firms will be having their say too.
Chancellor Philip Hammond did his best to sound upbeat, suggesting that UK could finally be seeing brighter times after years of austerity.
Offering a glimmer of hope for the future, Hammond told MPs:
“If, in the autumn, the public finances continue to reflect the improvements that today’s report hints at, then in accordance with our balanced approach … I would have the capacity to enable further increases in public spending and investment in the years ahead.”.
But with long-term growth weak, and the Britain’s deficit still stubbornly refusing to be wiped out, the picture is still troubling.
Also coming up today…. European Central Bank chief Mario Draghi is speaking in Frankfurt. We also get new US retail sales figures – they’ll be scrutinised for hints about how fast American interest rates will rise this year.
The markets are a little subdued, following the latest turmoil at the White House. The surprise sacking of secretary of state Rex Tillerson has spooked investors
Jasper Lawler of London Capital Group explains:
With Tillerson out the door, the market is assuming that Trump is aiming for a more aggressive foreign policy; enough to send a chill through the markets.
- 8am GMT: ECB president Mario Draghi speaks at “The ECB and Its Watchers XIX” conference
- 10am GMT: Institute for Fiscal Studies press conference on the spring statement
- 12.30pm GMT: US retail sales for February