That was the budget that wasn’t. There was a little fiddling at the edges; the cut in stamp duty designed to help first-time buyers amounted to nothing as it will cause house prices to rise and wipe out any benefit. In the end, it will help only existing homeowners. Same old, same old, in terms of austerity, with more cuts still to come for years ahead.
Not unrelated to that was the downgrade in the Office for Budget Responsibility (OBR) forecast of productivity growth and consequently economic growth.
GDP per head was downgraded by a cumulative 1.9% between now and 2021. The GDP growth forecast for 2017 is now a derisory 1.5%; 1.4% in 2018; 1.3% in both 2019 and 2020; 1.5% in 2021 and 1.6% in 2022. No other chancellor has ever had to report such a dreadful growth forecast for so long. As a result the Institute for Fiscal Studies estimated that by 2021 average earnings are set to be £1,400 lower than the government had predicted they were going to be. The Resolution Foundation said British people are now set to suffer their longest sustained period of falling living standards since records began in the 1950s.
But it could be a lot worse than that. First, the OBR has assumed that the Brexit negotiations go smoothly, and there is every indication that this is unduly optimistic. Discussions about the Irish border question are not going well and are adding to the uncertainty that firms are facing because of the uncertainty over the apparently stalled negotiations. Second, the OBR is still assuming there will be a major pick-up in productivity very soon compared with the average that has prevailed since the great recession. It provides no evidence to support the possibility of any pick-up at all, especially as investment is being held back owing to the enhanced levels of uncertainty.
There is no reason, in my view, to believe any takeoff in productivity will happen soon, given the OBR has assumed a surge in every one of its forecasts since June 2010. If either of these two problems arise, the economy could grow much more slowly than even the OBR’s horrid forecasts. I am still waiting for any good news from Brexit.
David Blanchflower is a professor of economics at Dartmouth College, New Hampshire, and was a member of the Bank of England’s monetary policy committee from June 2006 to May 2009