The second budget of the year was an opportunity for the Chancellor to prove that there is a long term vision for the UK economy, says Ross Campbell, ICAEW director, public sector.
While there was money for investment, most of the additional funding is being planned to provide a stimulus to the economy in 2019-20, the year that the UK will leave the European Union, and despite headline grabbing news on stamp duty for first time buyers, this is a cautious budget from a Chancellor with limited political and economic options.
With the OBR reducing its expectations of productivity and consequently economic growth up to 2019-22, this was a budget that saw the Chancellor further loosen fiscal policy in order to continue to deliver spending plans within tax revenues.
While the Government had its first July budget surplus in more than a decade and have continued some momentum with September’s figures marking the third month in a row in which public finances where better than forecasts.
The Chancellor appears cautious and plans to reduce the annual deficit have been relaxed against the previous position. The Chancellor has suddenly gone quiet on when we can expect to see the public sector finances return to overall surplus – there was no mention of this in the speech.
The Office for Budget Responsibility has forecast that overall government debt is set to fall as a proportion of the domestic economy, which appears to be due to an expectation that inflation in the general economy will be higher than growth in net public spending.
The government continues to borrow. Additional funding has been earmarked for the NHS, however given that public spending is subject to inflationary pressures as well, this implies that this government will have to maintain a posture of restraint. Consequently it is likely that public services will remain under significant cost pressure for the foreseeable future.
There are constraints within which the Chancellor is operating and there were difficult trade-offs and judgements that Government will continue to have to make to address the deficit, but a willingness to be flexible and imaginative must be at the heart of policy making.
Efforts to increase productivity are vital, so the announcements regarding increased investment in technology, research and development and infrastructure are a positive step forwards. This will also sow the seeds of future economic growth. It is disappointing however that the Chancellor has not been bolder and in the spirit of fiscal relaxation, and committed more funds to investment.
Over recent quarters, we have seen business confidence fall into negative territory and businesses becoming significantly more cautious when it comes to investing. The UK economy has been hovering on the cliff edge so with this budget the Chancellor has rightly avoided any seismic shocks that could have a further impact on confidence.
Announcements made today do not represent any real change, the deck of cards have simply been reshuffled. Ahead of uncertain Brexit negotiations, and growth and productivity forecasts expected to bring further cause for concern, the UK economy needs to see economic leadership and bigger decisions that will restore confidence for all.
The Government needs to develop a longer term plan than simply making it through the next few years. We don’t just need a plan for the next quarter, we need a plan for a strong economy throughout the next quarter of a century. To some extent, uncertainty is to be expected, but policymakers need to start showing there are good reasons to invest in technology, training and development, as well as new products and services to help drive economic growth in 2018 and beyond.
Only time will tell if the Chancellor has done enough today to create the conditions to promote greater investment, both public and private to drive renewed economic growth. This budget has made small steps towards addressing this significant challenge, however the Chancellor must start making larger strides if the government wishes to succeed.