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The legacy of George Osborne lives on in the latest budget
Philip Hammond lacks the showmanship of George Osborne, but his latest budget taught us, if nothing else, that he is a great deal funnier. The best humour comes from humility, of course, and Hammond cannot afford to be anything but humble at the moment.
Indeed, the best gags were aimed squarely at his Cabinet colleagues, mocking both Theresa May’s disastrous party conference speech, and Michael Gove’s rather pathetic pitch recently for Hammond’s job as Chancellor. Osborne, so desperate to succeed David Cameron as Prime Minister, would never have dared. Hammond’s delivery was that of a man who knows his career had already peaked.
In every substantive regard, however, this was classic Osbornomics. George Osborne budgets had three key characteristics: terrible economic forecasts (used to justify more austerity), bits of money for supporting innovation in high-value industries (accompanied by overblown rhetoric), and a housing market stimulus (invariably justified, duplicitously, as support for young people trying to get onto the housing ladder).
Hammond’s budget ticked every box. The British economy continues to under-perform against the government’s expectations. Most alarmingly, growth has been revised down sharply, to the extent that the Office for Budget Responsibility now acknowledges that assuming a return to a long-run growth rate of 2% in the forecast period is no longer plausible. Sure enough, Hammond used this news to legitimise his own commitment to austerity (a bit of extra cash for the NHS and Universal Credit notwithstanding).
Some of the resources that Hammond does have at his disposal were focused on investments to address the UK’s productivity problem, as part of the new industrial strategy to be announced next week. But if anyone was waiting for a sea-change in economic thinking, the wait goes on. A sizeable portion of the new funds for the so-called National Productivity Investment Fund (NPIF) will be gobbled up by local road improvements – much needed, but not transformative.
Furthermore, much of what is promised for high-tech R&D comes in the form of tax reliefs, which have limited benefits, or a new £2.5 billion fund within the British Business Bank which Hammond simultaneously announced he intends to privatise sooner rather than later. So far, so Osborne.
There was even an implicit reference to the inter-departmental squabbles over who ‘owns’ the UK’s industrial strategy. We might be forgiven for thinking that it belongs to the department with the term in its name, the Department for Business, Energy and Industrial Strategy (BEIS). But Osborne viewed addressing the UK’s productivity problem – perhaps the key objective of any industrial strategy – as firmly Treasury territory.
Accordingly, Hammond described improving productivity as the Treasury’s ‘central mission’. To the untrained ear, it might have sounded like a welcome introduction of joined-up thinking among the UK’s economics ministries. Not so. Hammond and the Treasury have a much narrower views of the causes of, and solutions to, the UK’s productivity problem than BEIS, and indeed Theresa May. Hammond’s speech was a warning to back off – hence the new funds for the Treasury’s NPIF, but nothing for the more visionary Industrial Strategy Challenge Fund, managed by BEIS. This does not bode well for next week’s white paper.
None of the new investments announced by Hammond are unwelcome. But while a few hundred million here and there for high-tech R&D might sound forward-thinking, these measures will make very little material difference to the UK economy. Don’t take my word for it: even factoring in Hammond’s new policies, the OBR is forecasting business investment to fall and, consequently, productivity growth to stagnate.
The budget also contained handouts for some local authorities – particularly those which have agreed to the metro-mayor model – but with new strings attached too on how they may use this cash. In case it isn’t already obvious: the metro-mayoral model is one of Osborne’s most important legacies, and he frequently used the rhetoric of local liberation to mask new forms of central control.
The big headline arising from the Budget is of course the near-abolition of stamp duty for first-time buyers. The measure will be viewed and presented as support for young people trying to buy their first home, but in reality the money first-time buyers save on tax will simply be added to the cost of the house by vendors. The change – exactly like Help to Buy, another Osborne ruse extended, despite all evidence of its ill-effects, by Hammond – is designed to act as a general stimulus for the housing market.
As such, the real story of the budget, in short, is that when faced with seemingly intractable economic problems, the government is turning once again to the housing market to paper over the cracks. George Osborne never succeeded in ‘rebalancing’ the UK economy – in truth, he never really tried. Philip Hammond’s tribute act is the last thing our economy needs.
Craig Berry is Deputy Director of the Sheffield Political Economy Research Group (SPERI). He tweets @CraigPBerry.
Image: altogetherfool CC BY-SA 2.0