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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Seven things we learnt from the Battle for Number 10

Jeremy Corbyn emerged the better as he and Theresa May faced a live studio audience and Jeremy Paxman. 

1. Jeremy Corbyn is a natural performer

The Labour leader put in a bravura performance in both the audience Q&A and in his tussle with Jeremy Paxman. He is often uncomfortable at Prime Minister’s Questions but outside of the Commons chamber he has the confidence of a veteran of countless panels, televised discussions and hustings.

If, like me, you watched him at more hustings in the Labour leadership contests of 2015 and 2016 than you care to count, this performance wasn’t a surprise. Corbyn has been doing this for a long time and it showed.

2. And he’s improving all the time

Jeremy Corbyn isn’t quite perfect in this format, however. He has a temper and is prone to the odd flash of irritation that looks bad on television in particular. None of the four candidates he has faced for the Labour leadership – not Yvette Cooper, not Andy Burnham, not Liz Kendall and not Owen Smith – have managed to get under his skin, but when an interviewer has done so, the results have never been pretty for the Labour leader.

The big fear going into tonight for Corbyn was that his temper would get the better of him. But he remained serene in the fact of Paxman’s attempts to rile him until quite close to the end. By that point, Paxman’s frequent interruptions meant that the studio audience, at least, was firmly on Corbyn’s side.

3. Theresa May was wise to swerve the debates

On Jeremy Corbyn’s performance, this validated Theresa May’s decision not to face him directly. He was fluent and assured, she was nervous and warbly.  It was a misstep even to agree to this event. Anyone who decides their vote as far as TV performances tonight will opt for Jeremy Corbyn, there’s no doubt of that.

But if she does make it back to Downing Street it will, in part, be because in one of the few good moves of her campaign she chose to avoid debating Corbyn directly.

4.…but she found a way to survive

Theresa May’s social care U-Turn and her misfiring campaign mean that the voters don’t love her as they once did. But she found an alternate route through the audience Q&A, smothering the audience with grimly dull answers that mostly bored the dissent out of listeners.

5. Theresa May’s manifesto has damaged her. The only question is how badly

It’s undeniable now that Theresa May’s election campaign has been a failure, but we still don’t know the extent of the failure. It may be that she manages to win a big majority by running against Jeremy Corbyn. She will be powerful as far as votes in the House of Commons but she will never again be seen as the electoral asset she once was at Westminster.

It could be that she ends up with a small majority in which case she may not last very much longer at Downing Street. And it could be that Jeremy Corbyn ends up defeating her on 8 June.

That the audience openly laughed when she talked of costings in her manifesto felt like the creaking of a rope bridge over a perilous ravine. Her path may well hold until 8 June, but you wouldn’t want to be in her shoes yourself and no-one would bet on the Conservative Party risking a repeat of the trip in 2022, no matter what happens in two weeks’ time.

6. Jeremy Paxman had a patchy night but can still pack a punch

If Jeremy Paxman ever does produce a collected Greatest Hits, this performance is unlikely to make the boxset. He tried and failed to rouse Jeremy Corbyn into anger and succeeded only in making the audience side with the Labour leader. So committed was he to cutting across Theresa May that he interrupted her while making a mistake.

He did, however, do a better job of damaging Theresa May than he did Jeremy Corbyn.  But not much better.

7. Theresa May may have opposed Brexit, but now she needs it to save her

It’s not a good sign for the sitting Prime Minister that the audience laughed at many of her statements. She had only one reliable set of applause lines: her commitment to getting the best Brexit deal.

In a supreme irony, the woman who opposed a Leave vote now needs the election to be a referendum re-run if she is to secure the big majority she dreams of. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.

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