David Fuller's view -
Philip Hammond has succumbed to the fatal caution of the Treasury. A rare chance has been wasted.
Britain must now face the full storm of the Brexit downturn next year and the year after without any precautionary buffer worth the name. A hard landing is all but guaranteed.
If the Chancellor had wished to launch a barrage of investment on the country’s rickety infrastructure and do something to lift productivity from the bottom ranks of the OECD league, there could scarcely have been a better global climate. All the stars are aligned.
The whole world is shifting on its economic axis. The era of fiscal austerity is over. The US, Japan, and even the eurozone, are all are switching to net stimulus, painfully aware that zero rates and quantitative easing have run their useful course.
Donald Trump wants an infrastructure blitz of $550bn over five years, buttressed by even bigger tax cuts than Ronald Reagan’s ‘supply-side revolution’ of the early 1980s.
Fiscal largesse has become the new global orthodoxy. The International Monetary Fund has converted. The bond vigilantes have been tamed. Vast sums of excess capital are sitting on the sidelines, searching for homes in infrastructure projects that pay for themselves. Yet the Chancellor has opted for caution.
There is nothing wrong with his list of targeted spending: £220m on ‘pinch points’ for congested roads, £450m for digital signalling on the railways, £750m on 5G mobile networks. They are admirable. But they do not make a dent on Britain’s infrastructure deficit or come close to offsetting the slump in private investment that is all too likely once the traumatic process of EU extrication gets underway.
Mr Hammond describes Britain’s productivity failings as “shocking”. “We lag the US and Germany by some 30 percentage points. But we also lag France by over 20 and Italy by eight. Which means that in the real world, it takes a German worker four days to make what we make in five,” he said.
Quite so, but his National Productivity Investment Fund of £4.8bn a year is thin gruel in a £2 trillion economy and still leaves public investment trailing average OECD levels by roughly 1pc of GDP. For all the rhetoric, it will actually fall in real terms.
The Treasury itself says in its ‘National Infrastructure Delivery Plan 2016-2021’ that the country needs to spend half a trillion pounds to plug the gap over the next five years, identifying 600 projects ranging from smart power, to fast broadband, flood defences, roads, sewers, and such exotica as beamless light and semi-conductor catapults.
I agree with AEP. This Autumn Statement is much too cautious given a barely recovering global economy, the low cost of government borrowing and as a cushion against Brexit uncertainty while the UK is in the process of leaving the EU.
This item continues in the Subscriber’s Area where a number of comments from UK industry are posted, as is a PDF of AEP’s column.
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