Good Gags but a Grim Message

Autumn Budget 2017 – Investment in technology and in housing provided the twin cornerstones of this Budget. The Chancellor made much of the UK’s position as a leader in new technologies, and promised enhanced support for their development. Further spending on infrastructure, in particular in the area of transport, is also promised. The National Productivity Investment Fund is a key conduit through which this investment will be undertaken.

Measures on housing include a boost to capital funding, loans and guarantees aimed at encouraging new build of 300000 homes per year. A particularly eye-catching move is to approve the creation of five new garden towns and the development of the area between Oxford, Milton Keynes, and Cambridge. These developments are welcome in that they address the supply side of the market directly – measures to encourage increased supply indirectly through stimulating demand have, in recent years, not been judged sufficiently effective. That said, the move in the Budget to scrap stamp duty on first time buyer homes up to £300000 (and on the first £300000 for those up to £500000) should also further help stimulate the market.

While not being in any sense a giveaway Budget, there were several moments clearly aimed at encouraging the ‘feelgood’ factor. The promise of additional funding for the NHS, and especially the exceptional resource funding of £2.8 billion, is welcome. Likewise the rise in personal income tax allowances will prove popular. Moreover, some of the detailed measures on the environment and on the delivery of mathematics teaching are very much to be welcomed.

Despite this, the sobering message of this Budget concerns the implications of revised assumptions on productivity for the future path of economic growth. This is now expected to be well below 2% in each of the six years in the forecasting horizon. That represents truly dreadful economic performance – a bad context for the framing of future Budgets. Fixing this makes it all the more essential that investments in improved productivity heralded by the improved support for advanced technology and infrastructure should pay off.