This morning, Interel hosted a Budget briefing with the Chair of the Treasury Select Committee, Nicky Morgan MP, and George Parker, Political Editor of the Financial Times.
The speakers joined Interel’s network of business leaders, to discuss what the Budget will mean for the economy, politics and Brexit.
Here are the top ten takeaways from the discussion:
1. The Budget was a political, not an economic, statement.
The Budget was as much aimed at the Conservative backbenches as it was the general public. Given the uncertainty caused by Brexit, the perilous state of the public finances and the Government’s slim majority, the Chancellor was dealt a difficult hand and had little room to manoeuvre. The Budget was therefore a low-key affair, which shouldn’t unravel as previous iterations have done.
2. The Chancellor emerged from the budget with his authority intact.
Despite speculation that the Chancellor was set to be sacked, the positive reaction from Conservative MPs and media have restored some of Hammond’s credibility, providing stability ahead of key Brexit talks. Hammond can thus continue to champion a ‘soft’ Brexit in Cabinet, including an appropriate divorce payment to the EU and suitable implementation period.
3. Setting aside £3bn for Brexit preparations is the right thing to do.
Setting aside contingency money is sensible policy, especially given the risks and uncertainties on the horizon. This money will be used for everything from new computer systems for customs points to recruiting trade negotiators to the Civil Service. Leaving the EU is a complex operation, and Hammond is determined that the Government be well prepared for it.
4. The UK’s ‘productivity puzzle’ is proving difficult to solve.
With growth figures revised downwards, and more borrowing subsequently required, it was necessary for the Chancellor to set out an ambitious economic vision for investment in innovation, education and skills development. While the Budget contained some promising proposals, poor productivity is a structural issue which will take many years to resolve.
5. This ‘Housing Budget’ was long overdue.
The housing sector is facing many challenges, including chronic under-supply, vacant properties in cities and land banking by developers. The Chancellor’s proposals on Stamp Duty and planning regulation were welcome, though more supply-side action is needed to complement this demand-side response. Tackling this key issue has the potential to revive the Conservatives’ standing with young voters.
6. Social care is a looming crisis that needs to be addressed.
Social care, along with pensioners, received no mention in the Budget. Given the UK’s rapidly ageing population, the money needed for social care is immense; cross-party consensus is required to tackle the issue. The Government should consider long-term and structural reforms to the sector, including further consolidation of social care into NHS services, and integrating low-dependency and high-dependency care facilities.
7. The budget placed Britain at the forefront of a technological revolution.
The focus on career retraining, and investment in new technologies such as autonomous and electric vehicles, are key to Britain’s prosperity. However, for low-skilled workers in deprived or rural areas, these announcements will be far from inspiring; the Government must work to share the proceeds of new technologies. The upcoming Industrial Strategy will set out the Government’s thinking shortly and presents a real opportunity.
8. Fiscal competence still matters.
The OBR analysis provided a raft of gloomy statistics for the UK economy, including lower than expected growth, higher than expected inflation, and a deficit that won’t be eradicated until the early 2030s. The Government must not abandon the fiscal credibility amassed over the Osborne Chancelleries, and work to retain public confidence in Treasury spending.
9. Brexit looms large over everything the Government does.
It is difficult to deliver strategic direction in the face of uncertainty; the reforms announced yesterday will be peripheral to upcoming decisions taken on the future trading relationship with the EU. The political uncertainty caused by Brexit may continue to undermine the credibility of top Government figures.
10. No future deal can be as good as EU membership, in terms of trade.
Departure from the bloc will necessarily result in friction in the trade of goods and services. The Government must mitigate this friction as best it can, and forge closer trading alliances with the rest of the world in its place. This is the price paid for control over immigration and strengthened Parliamentary sovereignty. It would be wrong to believe that political instability in Germany will help Britain’s negotiating hand, and is self-evident that the EU is negotiating in it’s own interests.