One should feel sorry for Philip Hammond. I suspect he was one of many who saw the irony when, in introducing his Budget, he announced ‘We are at a turning point in our history.’ Just when he needed a budget to convince voters, weary of austerity, that better times lay ahead he was forced to concede that living standards are going to go on getting worse. As is now the norm, he started by outlining the OBR’s forecast for the economy. In contrast to its usual optimism the OBR was forced to admit that the UK’s future was not as bright as it had previously forecast. Per capita GDP is likely to be a cumulatively 2 per cent lower in 2021 than it had forecast in March. The OBR’s GDP growth forecasts for the next four years are 1.5, 1.4, 1.3, and 1.3 per cent respectively. No post war chancellor has ever had to report such a dreadful growth forecast.
A direct consequence of the OBR’s forecast is a prolonged period low wage growth. The IFS estimates that average earnings will be some £1,400 lower than previously predicted by 2021. The Resolution Foundation has concluded that British households are set to suffer their longest sustained period of falling living standards since records began in the 1950s. A by-product of lacklustre wages growth is lower tax receipts and hence higher government borrowing. Official estimates show that over the life of this parliament some £90bn will be added to the UK’s debt and Hammond’s target of balancing the government’s revenue and expenditure has been pushed into a distant future.
27th November 2017