As Autumn Statements go, this was both thick and thin.
Thin in terms of the number of pages in the document itself – a mere 64 of them, which makes it more of a pamphlet than a major fiscal document, about half the length of its predecessors. But in terms of the changes to the official outlook for the economy, and the government’s own plans in the coming years, today was thick with changes.
Let’s go a through of them, told through the medium of some of the most important charts of the day.
And the best place to start is with this chart, showing you just how much government borrowing is due to increase in the coming years (£122bn in total, compared with the March Budget), and where all that extra borrowing comes from. As you can see, a fair chunk of it is down to the usual stuff: extra spending commitments from the Government (the green bit), forecast changes (red) and reclassifications of where the debt sits in the national accounts (yellow).
But as you can see, by far and away the biggest chunk of the increase in the deficit each year is down to Brexit-related effects. In short, the Office for Budget Responsibility (who do these forecasts) think the economy will be weaker in the coming years. That, in turn, means less income shared across the country, which means less income tax, which means a higher deficit.
In other words, the big story from the Autumn Statement this year is less about the extra money the Government is spending and more about the ginormous fiscal impact of Brexit – a cumulative £58.6bn or more than half of the total deficit increase.
Which raises the question: why does Brexit cause so much fiscal damage. The answer can be found in this next chart, which I’ve put together from some of the figures in the OBR’s documents today. In short, most of the Brexit weakness is associated with three things: lower migration, weaker productivity (itself partly a consequence of weaker investment) and a likely cyclical economic downturn caused by uncertainty and a squeeze on wages. In other words, all the stuff those economists were warning about before the referendum will mean the UK economy will be significantly weaker (2.4% over the forecast horizon) and households will be left with a major chunk of extra borrowing (£122bn) to pay off in future.
Then again, these are still forecasts, so if you’re one of those people who’s inclined not to believe them, then that’s your prerogative.
And that brings us to this chart, which shows you just how unsure economists out there in the UK are about the potential growth rate in the coming years. As you can see, the OBR has set its own forecast somewhere in the middle, but it admits that the room for error is far greater than ever before. Indeed, it revealed today that despite imploring the Government for more detail about the likely path of the negotiations, it knows about as much as the rest of us. Which is to say not a lot.
Still, we are where we are. And with the deficit and the national debt now much higher than before, that means the Treasury has already broken the three fiscal rules set by George Osborne to keep borrowing in check. Philip Hammond’s solution? Get another three fiscal rules. His new rules (which, as you can see from this helpful checklist from the OBR) are all being met at the moment. That’s not a surprise, since they’re so much easier than the previous ones. In fact, by some measures they’re easier to meet than those proposed by Labour Shadow Chancellor John McDonnell. Interestingly, despite this sudden fiscal lurch, markets remain relatively sanguine, and while the UK’s cost of borrowing increased a touch, it’s still well, well below recent levels. Which just about tells you how much they care about missing fiscal rules (or indeed needing them in the first place).
Anyway, now for the question you’re all no doubt asking: who gets all the money? Well, such as it is (this was not a big rabbit-out-of-hat moment), the vast majority of it will be spent on infrastructure: roads, railway, broadband and all that. That’s the grey-blue chunk in this next chart from the OBR. That’s leavened out by some small tax rises (stuff like an increase in insurance premium tax (again) and removal of salary sacrifice and other such loopholes) and sits alongside some smallish increases in welfare spending.
But, and this is important, note that in the grand sweep of things, Government spending on investment will remain very low in the coming years. Indeed, as this long-run chart shows, public sector net investment (eg with depreciation subtracted) will still, in 2021, be lower than it was in 2010. So not as big as it looks at first.
Finally, the Treasury did something welcome and honest in this Autumn Statement (how often can we say that?) and provided a bit of detail about winners and losers. This chart shows you which income groups will benefit and suffer most as a result of the policies both in today’s statement but also in the announcements we’ve had since last year’s election. As you can see, the wealthiest 10% of the population are by far and away the biggest losers. However, they are followed by the poorest 10% of the population, who of course will bear the brunt of the benefits freeze introduced by Mr Osborne.
And that raises one, big, unanswered question from today’s announcements: why is the Government not addressing the one policy that will cause most pain to the Just About Managing families and reconsidering this freeze? The upshot is that for many people, working and reliant on benefits to keep them financially afloat, the coming winter and spring will be very chilly indeed.