Autumn Budget 2024

 I am sadly old enough to remember when budget purdah was a thing. Clearly, no more, with relatively few surprises in today's budget, which hadn't either been formally announced or at least briefed in advance. That doesn't mean it wasn't a massive shift in direction, arguably transformational. I would highlight three in particular.

The first is the distributional analysis. After 14 years of the Tories rewarding the rich, this looks like a proper socialist budget. This point is reinforced by specific measures such as changes in Capital Gains Tax, Inheritance Tax, and, the one I particularly enjoyed, private jet passenger duty.

Second, there will be a big increase in spending for devolved administrations. An extra £1.5bn for the Scottish Parliament this year and an increase of £3.4bn next year. As Stephen Boyd points out, this doesn't end all the Scottish Government's long-term challenges, but if I were Shona Robison, I would sleep better tonight. 

Third are the fiscal rule changes, which many of us have been shouting about for weeks. This means more significant public investment in rebuilding our public services. As the OBR highlights, this alone won't boost GDP in the medium term, but it does start to fix the foundations of the economy after many years of neglect. Some of us would argue it could have been more significant and, as the OBR also highlights, must be sustained. The historical record shows (below) that it is not the 1960s and 70s, but greater than the manifesto implied and a move in the right direction. The OBR assessment of the impact on inflation, debt, and the bank rate is marginal. 

Other excellent announcements include the above-inflation increase in the minimum wage and reserved spending on defence, although this is still below where we need to be as a proportion of GDP. Hopefully, the Defence Review will address the huge threats to our national security. Confirming the ending of VAT exemptions for private schools thankfully showed the absurd lobbying failed. I was also pleased to see action on the mineworkers' pension scheme. 

If there is one big disappointment, it is the failure to increase fuel duty. I filled up my car on the way home yesterday, and when I left the petrol station, I thought it would not likely be that low for some time. However, Fuel Duty was frozen, and the 'temporary' 5p cut was kept. For a government that cares about climate change, this is bonkers, particularly when increasing the cap on bus fares. Some economic downsides around household incomes and employment have to be acknowledged. Increasing Employer NICs is not a free lunch.

Overall, I was very impressed with this budget. Of course, there are actions I would have liked to see that are missing, and she could have gone further with others. Serious tax reform is still needed, particularly on wealth. However, this was a step change in direction, and you can't do everything at once. There is still some headroom against fiscal rules, so there is scope for further structural changes.

Great Britain? How We Get Our Future Back

 If you are interested in economic policy, I recommend reading Torsten Bell’s new book, Great Britain? How We Get Our Future Back. In it, he provides a detailed analysis of the key economic challenges facing the UK today and proposes policies to return the country to economic and social prosperity. Torsten Bell is best known as the chief executive of the Resolution Foundation, whose economic and social policy analysis is always worth reading. Before that, he was a Treasury civil servant and now a Labour MP.

His analysis of what's gone wrong is trenchant and well-argued but not new to anyone who follows the Resolution Foundation's work. He argues that the austerity economics pursued by the Tories was economically damaging and socially disastrous. A toxic combination of high inequality and low growth left the UK exposed to Brexit, a global pandemic and the biggest inflation shock for a generation. In particular, this negatively impacted both poorer and middle-class Britain. He also highlights the breakdown of the intergenerational contract, ‘The young are earning lower wages than their predecessors, in more insecure jobs, while renting smaller properties for longer, as their aspirations to homeownership sail out of view.’

Bell points to a productivity gap that has doubled in the UK compared to France and Germany despite the well-publicised challenges those countries face. British workers produce in five days what their competitors produce in four, resulting in stagnant real average wages. Rising property prices and rents mean the average family spends twice as much of their income on housing costs compared to 1980. The cost of housing in the UK is the second highest out of 38 OECD countries. 

For the degrowthers (the theory that growth is undesirable), they’ve got what they wanted. Anyone thinking the problem is that we have had too much growth has missed the news that we haven’t had any. This is not normal, even after recessions.

There is much more about what's wrong, but the vital part of the book is how to put it right. I suspect not all his views will be universally accepted. For example, he opposes a Universal Basic Income (UBI), arguing, ‘an affordable UBI would be inadequate, and an adequate UBI would be unaffordable.' I agree, but many on the left don't. He is not opposed to directly elected mayors (I am) but argues that they have been tasked with providing economic leadership without the means to deliver it. He is absolutely right about the need to build up a smaller number of larger pension funds, but that is being resisted, including by many councils in Scotland.

The core of his prescription is investment, public and private. Britain has had some of the lowest investment spending of countries in the OECD; consequently, we have substandard water systems, transport, and road infrastructure. He argues that Britain should adopt a 'golden rule' level of investment of 2.5%- 3% of GDP every year, pointing to the opportunities for investment in the necessary decarbonisation of the economy.

None of this is exactly radical economic thinking, but has the Chancellor read his book?  The signs are mixed. Some reports indicate a possible change to the fiscal rules, and others say the Chancellor is demanding cuts to infrastructure spending of around 10%. There has been some more positive news today. The Chief Secretary to the Treasury, Darren Jones, has announced a 10-year infrastructure strategy at the full spending review next year, which includes housing and schools as key economic growth drivers and will be overseen by a new body. But note, that is ‘next year’. 

And don’t expect the private sector to come to the rescue. Non-government investment in almost every other G7 economy is in a narrow range from 16.8 to 18.7 per cent of GDP, but in the UK, it's not even 15 per cent. Foreign ownership has increased from just over 10 per cent in 1990 to over 55 per cent in 2020, with no pressure to make long-term investment decisions. Bell points to the evidence that worker representation on company boards boosts investment levels and productivity. A policy that even Tories from Macmillan to May have supported – so let's do it!

Returns from higher investment in the form of increased productivity and growing real wages will take some time to realise - outwith the political cycle. However, short-term cuts could damage the economy and Labour’s electoral credibility. It may be early in the UK administration, but Scottish Labour has an election next year.

Bell concludes, ‘We must reclaim the confidence that progress is possible… it is politically and economically possible for the UK to escape from its union of slow growth and high inequality.’ Knock, knock – let’s hope the Chancellor is reading this book.