This was no Autumn Statement for growth

The measures announced today by Osborne will increase output by a meagre 0.1 per cent.

Today’s Autumn Statement was a strange creature. The Chancellor has gone to great lengths to implement a bunch of expensive supply side measures to help the economy grow. But at the same time, the Office for Budget Responsibility appears to have gone in the opposite direction, suggesting that it’s the demand side, not the supply side of the economy that is where the problem lies. That would imply a rather different set of measures to the ones we saw today.

In the run-up to today, the government set a few hares running about how it was going to reallocate current to capital spending to boost growth. Since capital spending tends to raise economic output by more than current spending, building schools and roads could provide a sorely needed boost to the stagnant economy. Just what the doctor ordered. And such a shift was exactly the sort of thing the Social Market Foundation advocated last February as a way to provide a fiscal stimulus without deviating from the Chancellor’s deficit reduction plan.

In the event, the investment is a pretty paltry £2.3bn next year and £3bn after that. On its own, that might boost output by about the same amount: a piddling 0.1 per cent of GDP in each year. Unfortunately, even this microscopic growth measure is all but cancelled out by where the funds have been raised from. The decision to uprate benefits by just 1 per cent for three years will suck demand out of the economy from next April, all but off-setting any stimulus effect of the investment plan. Quite apart from the fairness debate, if you need to save money from the welfare bill, it would have been far wiser to wait until the economy is back on its feet.

By contrast, one bright spot – and it was only a spot – was the decision to raise £600m from limiting pension tax relief for top earners. Cutting spending on measures that encourage people to take money out of the economy is an excellent example of a demand-friendly cut. Well done the Lib Dems. They should have done more.

Unsurprisingly, then, for all the infrastructure investment chat, the OBR estimates that the measures in the Autumn Statement will increase output by a meagre 0.1 per cent. This was no ‘Autumn Statement for growth’, whatever the rhetoric.

What this statement was really about was supply side measures, and here the Chancellor has really pulled out the stops. Raising the personal allowance and capping fare rises will make work pay more for the middle classes. Eroding benefits will sharpen work incentives by making life more uncomfortable for those out of work or on low wages. The populist fuel-duty give-away will cut the costs for firms and families. And the corporation tax cut will marginally encourage investment. But it is very unlikely that these measures will do anything to stimulate growth, in the short-term at least.

And here the OBR seems to be saying that the Chancellor has misdiagnosed the problem. Last month the SMF replicated the OBR’s models for estimating how much of the current deficit will remain once the economy gets back to normal. Had the OBR stuck to its models, they would have said that the demand shortfall in the economy was relatively minimal. In that world, supply side policies might make some sense. But today, the OBR junked its models wholesale, adopting a totally different technique. Now they’re saying that the economy is suffering from a large and increasingly persistent shortfall in demand.

The biggest threat to the supply side of the UK economy is from a yawning output gap. Weak demand means that unemployed workers will slip into permanent inactivity, while capital will depreciate. Incentives to invest will remain weak, and banks will see no advantage to calling time on their zombie company clients. This is all very bad news for our future prosperity and our society. But action on demand from the Chancellor has been entirely rhetorical today. Frenetic activity on the supply side looks like fiddling while Rome burns.

Chancellor George Osborne delivers his Autumn Statement in the House of Commons. Photograph: Getty Images.

Ian Mulheirn is the director of the Social Market Foundation.

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Trident is dangerous – and not for the reasons you think

Fixating on Trident is like replacing the guest bathroom while your own toilet flush doesn't work. 

Backing Trident is supposed to make a politician look hard, realistic and committed to Britain’s long history of military defence.That’s why the Tories delighted in holding a debate on renewing the nuclear weapons system in June 2016.

But it was the Tory Prime Minister who floundered this weekend, after it emerged that three weeks before that debate, an unarmed Trident missile misfired - and veered off towards the United States instead of Africa. Downing Street confirmed May knew about the error before the parliamentary debate. 

Trident critics have mobilised. Scotland’s First Minister, Nicola Sturgeon, called the revelation “serious”. Labour leader Jeremy Corbyn, a longstanding opponent of nuclear weapons, said the error was “pretty catastrophic”. 

The idea of a rogue nuclear missile heading for the White House may have fuelled the disarmament movement. But even if you enjoy the game of nuclear poker, fixating on Trident is dangerous. Because while MPs rehearse the same old Cold War arguments, the rest of the world has moved on. 

Every hour debating Trident is an hour not spent debating cyber warfare. As Peter Pomerantsev prophetically wrote in April 2015, Russian military theory has in recent years assumed that it would not be possible to match the West militarily, but wars can be won in the “psychosphere”, through misinformation.

Since the Russian cyber attacks during the US election, few can doubt this strategy is paying off - and that our defence systems have a long way to catch up. As shadow Defence secretary, Emily Thornberry described this as “the crucial test” of the 21st century. The government has pledged £1.9bn in cyber security defences over the next five years, but will that be enough? Nerds in a back room are not as thrilling as nuclear submarines, but how they are deployed matters too.

Secondly, there is the cost. Even if you back the idea of a nuclear deterrent, renewing Trident is a bit like replacing the guest bathroom when the regular loo is hardly flushing. A 2015 Centreforum paper described it as “gold-plated” - if your idea of gold-plated is the ability to blow up “a minimum of eight cities”. There is a gory but necessary debate to be had about alternatives which could free up more money to be spent on conventional forces. 

Finally, a nuclear deterrent is only credible if you intend to use it. For this reason, the British government needs to focus on protecting the infrastructure of the North Atlantic Treaty Organisation, now under threat from a US President who declared it “obsolete”. Eastern Europe has been nervous about the bear on its borders for some time - the number of Poles joining the country’s 120 paramilitary organisations has tripled in two years.  

Simply attacking Trident on safety grounds will only get you so far - after all, the argument behind renewing Trident is that the status quo will not do. Furthermore, for all the furore over a misfired Trident missile, it’s hard to imagine that should the hour come, the biggest worry for the crew of a nuclear submarine will be the small chance of a missile going in the wrong direction. That would be missing the rather higher chance of global nuclear apocalypse.

Anti-Trident MPs will make the most of May's current embarrassment. But if they can build bridges with the more hawkish members of the opposition, and criticise the government's defence policy on its own terms, they will find plenty more ammunition. 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.