Against a background of global shifts and economic uncertainty, Alexandra Jones looks ahead to the big themes and questions for next week’s Autumn Statement
Next week’s Autumn Statement has a lot of work to do. The first since the EU referendum and Donald Trump’s victory in the US elections, it will reveal the Office for Budgetary Responsibility’s economic forecasts and give some insight into how Theresa May’s still-new Government intends to respond. This will be made more challenging by the ongoing reluctance of the Prime Minister and her ministers to give anything away about the Brexit negotiations, which will nonetheless dominate much of the analysis and commentary around the Autumn Statement. So what are the big themes likely to be?
Prediction is a discredited science in 2016, particularly when it comes to politics, but even so, I’m willing to bet (a small amount) that reassurance – to the markets, businesses and electorate – will be a huge theme. There are global questions about the future of trade relationships following the US election which compound the uncertainties facing the UK following the EU referendum. The Government therefore needs to work hard to show it is doing all it can to ensure the economy stays strong.
One way it will seek to do this is by offering continuity, particularly on Government spending. The Institute for Fiscal Studies recently predicted that the deficit will be £25bn worse than predicted in March 2016, while stories this week have suggested that the UK faces a £100bn bill for Brexit within five years. As such, despite all the challenges facing the NHS, schools and social care – and the new Chancellor’s decision to abandon his predecessor’s deficit reduction targets – it’s unlikely that the previous Government’s austerity agenda will disappear in favour of big boosts in departmental spending.
However, the Government will also want to inspire confidence by demonstrating the willingness to do things differently. As the Chancellor Philip Hammond has emphasised, it will not amount to a fiscal splurge, but we are likely to see some spending to help boost the economy, particularly on transport infrastructure. This would be welcome, not least because organisations like the CBI have argued consistently that the UK has under-invested in infrastructure. That’s evident in the fact that the UK spends just 40 per cent of the Western European average for infrastructure, as Professor Philip McCann pointed out at a recent Centre for Cities event.
Investment in transport infrastructure generates short-term jobs, long-term assets and can support businesses to grow. If that investment is committed to city regions in different parts of the UK, it will also be a way of demonstrating the Government’s commitment to achieving May’s stated aspiration for a ‘country that works for everyone’.
Beyond transport, we’re also likely to see investment in housing, with Sajid Javid having declared the latter as his number one, two and three priorities for his time as Secretary of State for Communities. The emphasis here should be on boosting supply of housing, rather than focusing on increasing demand for housing – provided it responds to the differing needs of local communities, rather than taking a ‘one-size-fits-all’ approach that won’t work outside some of the biggest cities.
The Chancellor may also offer more insight into the Government’s new industrial strategy, which will aim to “drive growth up and down the country”. While detailed policy announcements seem unlikely, the Government may regard the Autumn Statement as an opportunity to set out a broad framework and timetable for the strategy, particularly after the Government’s deal with Nissan increased speculation about whether it will be place-based, sector-based or both.
Devolution may well feature too – with deals for Yorkshire, the Solent, Lancashire, a smaller version of the North East are all possibilities, while rumours have suggested that the West Midlands might get a supplementary fiscal devolution deal on top of its current agreement. Certainly I’d expect Andy Street, the Conservative candidate for mayor of the West Midlands, to feature in the speech, especially given that a 4.5 per cent swing (from the last general election) is all that is required for him to scoop the prize.
Overall, however, devolution is unlikely to be as high on the agenda as it was under previous Chancellor George Osborne, for whom it was a personal passion. While Greg Clark – who has also been pivotal in driving the devolution agenda – is now even more senior in Government, his focus is primarily on the industrial strategy, and it’s unclear yet whether Hammond is as enthusiastic about devolution as his predecessor.
And that’s the final point I want to make – so much policy and decision-making comes down to people, but many of the key personalities in the new Government continue to be unknown quantities. We knew that David Cameron and Osborne were close, and what some of their key concerns were, from troubled families to devolution. We also knew that Osborne had huge influence over the Budgets and Autumn Statements – both the good ones and the omnishambolic ones.
This time, however, it’s unclear how May and Hammond will work together. For example, Hammond’s hard-headed pronouncements on the consequences of Brexit, his desire to stay in the single market and his suggestion that international students could be excluded from immigration targets, were all quickly quashed by Number 10, which has instead emphasised the primary importance of restricting immigration. This raises a number of big questions: to what extent will this be May or Hammond’s Autumn Statement? How much can they say about the Brexit negotiations, or how much will they attempt to reassure markets and investors without reveal their negotiating hand? How much will they respond to the new dynamics in the US and the consequences for the EU and the UK?
So much is still uncertain. But with a great deal of expectation around the Autumn Statement, it’s clear that the Government needs to offer clarity on its plans and priorities for the economy, as well as demonstrating that Britain will still be open for business and leading the world when it comes to international trade. Watch this space for further commentary in the coming days on what the Autumn Statement might mean for UK cities, the economy, and devolution.
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