U.K. Finance Minister Seeks to Placate Angry Young Voters

With a potentially perilous exit from the European Union looming, many Britons face a squeeze on living standards, but for one group, it may prove particularly tough.

Without changes, younger Britons risk becoming less prosperous than their parents’ generation for the first time since the Black Death pandemic that ravaged the region in the Middle Ages, according to the country’s chancellor of the Exchequer, Philip Hammond, who delivered his annual budget on Wednesday.

That risk could also prove critical for Mr. Hammond’s Conservative Party. The divide between generations, long debated in Britain, became a newly urgent topic for the Conservatives after a general election in June, in which they unexpectedly lost their majority in Parliament. Young voters turned out in force for the opposition Labour Party, led by the left-wing Jeremy Corbyn.

Mr. Hammond’s announcements on Wednesday focused on housing, seen as a major factor in Britain’s intergenerational divide. Older, asset-rich Britons have benefited from rising home prices, while many younger people have found themselves having to rent, often expensively, rather than buy, particularly in London and southeastern England.

The budget introduced on Wednesday abolished the stamp duty, a tax paid on home purchases, for first-time buyers of properties costing up to 300,000 pounds, or about $397,000, and on the first £300,000 of first-time home purchases up to £500,000.

That measure, however, could result in higher home prices by fueling demand, according to an independent watchdog organization, the Office for Budget Responsibility, which warned that “the main gainers” from the policy could be “people who already own property” and are able to sell for even higher prices.

Mr. Hammond also promised £15.3 billion over five years for measures to encourage construction, and an inquiry into claims that developers were hoarding land on which houses could be built. The government was ready to use compulsory purchase powers “as necessary,” Mr. Hammond said.

“This is our plan to deliver on the pledge we have made to the next generation, that the dream of homeownership will become a reality in this country once again,” he said.

Responding to Mr. Hammond’s speech, Mr. Corbyn, the Labour leader, described it as “a record of failure with a forecast of more.”

“Economic growth has been revised down,” Mr. Corbyn said. “Productivity growth has been revised down. Business investment revised down. People’s wages and living standards revised down.”

Prime Minister Theresa May, now governing with the support of a small Northern Ireland party, badly needs a lift after months of infighting over Britain’s planned withdrawal from the European Union, known as Brexit, and the resignation of two cabinet ministers in recent weeks. Recent polling suggested the government’s popularity had fallen sharply among young people, while holding relatively steady over all.

The finance minister’s own political position is acutely vulnerable, and his room for maneuver limited, as he deals with slower than expected growth in productivity in Britain and as he prepares for the possibility that Brexit will significantly damage the economy.

Mr. Hammond was once seen as a technocrat who made up for his lack of charisma with calm competence. But that reputation was eroded when an outcry forced him to withdraw some planned tax changes earlier this year. And his determination to avoid a sudden change in regulations on European trade — a “cliff-edge” Brexit — has angered those within his party who want sunny optimism from their chancellor, and would prefer a cleaner break with the European bloc.

They include Nigel Lawson, a former chancellor, who called for Mr. Hammond to be fired, saying that his unwillingness to prepare for life without a Brexit agreement was “very close to sabotage.”

In his speech on Wednesday, Mr. Hammond promised £3 billion for Brexit preparations, adding, “No one should doubt our resolve.”

On the question of housing affordability in Britain, most analysts blame a lack of supply, a view Mr. Hammond appears to accept.

“I’m clear that we need to get to 300,000 units a year if we are going to start to tackle the affordability problem with the additions coming in areas of high demand,” he told The Sunday Times of London, referring to construction of new homes. The current figure is around 217,000 a year.

“We will not allow the current young generation to be the first since the Black Death not to be more prosperous than its parents’ generation,” he added.

Housing is just one area in which Mr. Hammond’s own lawmakers have demanded more spending, as evidence increases that services like health care are overstretched, and that Britons are fed up with the wage restraint and the cuts to government spending since the financial crisis.

On Wednesday, Mr. Hammond promised £3.75 billion more for Britain’s National Health Service over the next three years, with the possibility of extra to cover a potential pay raise for nurses. Other measures included decision to expand a rail-travel discount program for people under 25 to include those under 30.

A spokeswoman for his department said on Wednesday that the budget contained £25 billion of new spending in total.

Over all, the British economy has so far defied the worst predictions made in the run-up to the 2016 referendum. Borrowing has been slightly lower than predicted, giving a little more wiggle room in the short term. But, already, what was recently the fastest-growing developed economy has dropped to the bottom of that league, as businesses fret about investment decisions amid uncertainty about Brexit.

Inflation has risen, largely because of a drop in the value of the pound against other currencies. That, in turn, has produced a small increase in interest rates. And with wage growth being sluggish, living standards have been squeezed.

On Wednesday, Mr. Hammond announced that Britain’s independent fiscal watchdog, the Office for Budget Responsibility, had cut its forecasts for economic growth over the next five years, based on lower productivity growth.

Where once it predicted growth of 2 percent in 2017, with a slowdown to 1.6 percent in 2018 followed by a gradual recovery back to 2 percent growth in 2021, the office now foresaw growth of 1.5 percent in 2017, falling slightly over subsequent years and recovering only to 1.6 percent in 2022.

“Although Brexit uncertainty hangs over the U.K.’s long-term outlook, the economy continues to hold up well,” wrote Kallum Pickering, senior Britain economist at Berenberg Bank, in an analysis before the speech, adding that Mr. Hammond “ought to use this boost to finances to make a stronger commitment to budgetary discipline.”

The temptation, Mr. Pickering wrote, would be “to pursue policies that could generate support for him personally,” and “offer a few sweeteners to try and draw key groups of swing voters toward the Conservatives.”

Content originally published on https://www.nytimes.com/2017/11/22/world/europe/uk-budget-speech.html by STEPHEN CASTLE