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.

Photo: Getty
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The campaign to keep Britain in Europe must be based on hope, not fear

Together we can show the world a generous, outward-facing Britain we can all be proud of.

Today the Liberal Democrats launched our national campaign to keep Britain in Europe. With the polls showing the outcome of this referendum is on a knife-edge, our party is determined to play a decisive role in this once in a generation fight. This will not be an easy campaign. But it is one we will relish as the UK's most outward-looking and internationalist party. Together in Europe the UK has delivered peace, created the world’s largest free trade area and given the British people the opportunity to live, work and travel freely across the continent. Now is the time to build on these achievements, not throw them all away.

Already we are hearing fear-mongering from both sides in this heated debate. On the one hand, Ukip and the feuding Leave campaigns have shamelessly seized on the events in Cologne at New Year to claim that British women will be at risk if the UK stays in Europe. On the other, David Cameron claims that the refugees he derides as a "bunch of migrants" in Calais will all descend on the other side of the Channel the minute Britain leaves the EU. The British public deserve better than this. Rather than constant mud-slinging and politicising of the world's biggest humanitarian crisis since the Second World War, we need a frank and honest debate about what is really at stake. Most importantly this should be a positive campaign, one that is fought on hope and not on fear. As we have a seen in Scotland, a referendum won through scare tactics alone risks winning the battle but losing the war.

The voice of business and civil society, from scientists and the police to environmental charities, have a crucial role to play in explaining how being in the EU benefits the British economy and enhances people's everyday lives. All those who believe in Britain's EU membership must not be afraid to speak out and make the positive case why being in Europe makes us more prosperous, stable and secure. Because at its heart this debate is not just about facts and figures, it is about what kind of country we want to be.

The Leave campaigns cannot agree what they believe in. Some want the UK to be an offshore, deregulated tax haven, others advocate a protectionist, mean-hearted country that shuts it doors to the world. As with so many populist movements, from Putin to Trump, they are defined not by what they are for but what they are against. Their failure to come up with a credible vision for our country's future is not patriotic, it is irresponsible.

This leaves the field open to put forward a united vision of Britain's place in Europe and the world. Liberal Democrats are clear what we believe in: an open, inclusive and tolerant nation that stands tall in the world and doesn't hide from it. We are not uncritical of the EU's institutions. Indeed as Liberals, we fiercely believe that power must be devolved to the lowest possible level, empowering communities and individuals wherever possible to make decisions for themselves. But we recognise that staying in Europe is the best way to find the solutions to the problems that don't stop at borders, rather than leaving them to our children and grandchildren. We believe Britain must put itself at the heart of our continent's future and shape a more effective and more accountable Europe, focused on responding to major global challenges we face.

Together in Europe we can build a strong and prosperous future, from pioneering research into life-saving new medicines to tackling climate change and fighting international crime. Together we can provide hope for the desperate and spread the peace we now take for granted to the rest of the world. And together we can show the world a generous, outward-facing Britain we can all be proud of. So if you agree then join the Liberal Democrat campaign today, to remain in together, and to stand up for the type of Britain you think we should be.