Philip Hammond’s spring Budget was a disaster. The Chancellor’s decision last week to knock the self-employed, at a time when such flexible, often entrepreneurial workers have helped drive the UK’s employment boom, has badly backfired.
This row over national insurance contributions, though, while serious, shouldn’t detract from other important aspects of this budget. On the plus side, Hammond confirmed corporation tax will fall from 20pc to 19pc next month and 17pc by 2020. I was also pleased by what looks like a genuine commitment to boost vocational training.
Aside from the NICs debacle, the thrust of this budget was rather alarming. Rather than a “prudent, responsible” package, as the Treasury spun and journalists swallowed whole, the technical documents point to a massive rise in government borrowing.
The spring budget of 2016 outlined borrowing of £38bn during the four years from 2017 to 2020 inclusive, with the UK running a surplus during the last two years of that period. Last week’s budget projected borrowing over that same four-year period of £141bn – more than a three-fold increase. On these numbers, our annual deficits will continue for another decade, until 2026, with Hammond abandoning even the pretense of living within our means. And now the global interest rate cycle has turned, with our national debt growing ever larger, the £50bn the government currently spends on debt interest – more than on schools – can only go up.
An equally disappointing aspect of this budget was that Hammond dropped the ball on Brexit. With Theresa May set to trigger Article 50 by the end of March, it’s astonishing the Chancellor – a remain voter, still viewed as reluctant to leave – didn’t use his Commons set-piece to get full square behind the Prime Minister.
Where was his assertion that the UK will indeed be leaving the single market and the EU’s customs union? Why didn’t he confirm that, once we’ve left, our farmers, and research and development efforts, will receive assistance similar to that currently administered by the EU?
Why didn’t he strengthen the UK’s negotiation hand by reporting, truthfully, that progress is being made in terms of cutting trade deals with non-EU members and regaining the UK’s seat at the World Trade Organisation?
Why didn’t he publicly celebrate the on-going foreign direct investment we’ve seen since our Brexit vote, from the likes of Google, Apple and Boeing?
Rather than tampering with NIC rates, the Chancellor needs to get with the programme. If the Treasury won’t get fully behind Brexit under Hammond, it should be lead by someone else.
“What is the point of astrology? To make economists look like good forecasters”.
Last week, I took part in a debate at the National Institute of Economic and Social Research, the leading Westminster-based economic think-tank. The subject of debate: “How can economists be more effective in informing the public throughout the Article 50 process?”
Mindful that almost all professional economists backed Remain – and I prominently voted Brexit – I lightened the mood by starting my contribution with a few jokes at the expense of all economists, myself included. Once we got past the jokes, though, the discussion that ensued with my two Remain-voting fellow panelists, was both serious and important.
The economics profession has been pilloried in recent years. If it wasn’t the Queen asking why we didn’t see the financial crisis coming (there were honorable exceptions), it was the insistence of many dismal scientists that anyone who voted Leave was either stupid or misled.
Before the referendum, the Treasury produced a 400-page report which concluded that merely voting Brexit would result in “an immediate and profound economic shock”. Since then, our official economic institutions have admitted to what one leading Bank of England official called “a Michael Fish moment” – evoking the BBC weatherman who, back in the 1980s, predicted a calm night ahead of what turned out to be a once-in-a-generation storm.
During the Article 50 talks, then, how should the economics profession conduct itself? These negotiations will involve highly technical subjects – WTO rules, tariff menus, complex rebate calculations – conducted within a cauldron of public opinion. A propaganda war will likely ensue, not just between the UK and the other 27 EU members, but also here at home, between Brexit-deniers and those committed to leaving and securing the best deal. Political careers will be wrecked. Tempers will be lost. The black arts of ad hominem attacks and fake news will no doubt come to the fore.
During that time, the economics profession will under intense scrutiny. All of us – however we voted – should say what we know for certain, but openly admit when we’re uncertain. As negotiations develop, and various scenarios are debated, we must make clear what we don’t know. Economists from both camps should defend statements that are factually accurate, while knocking down those that aren’t. Above all, we must all accept, that all economic forecasts, by definition, are open to debate.
What many high-profile economists forgot during the referendum campaign, and must now remember, is that sometimes it makes sense to agree to disagree. Economics, while factually based, is a social science. Smart people can come to different conclusions. That will happen frequently, as our Article 50 negotiations unfold. Fellow economists mustn’t jump to take offence, or assume bad faith, when there’s an honest difference of opinion.
If the profession doesn’t talk to each other in plain language, while disagreeing with civility, the reputation of the dismal science will sink further still. I’m grateful to prominent economics blogger Frances Coppola and Professor Tony Yates of Birmingham University, who joined me at the National Institute for a constructive and useful debate. This is precisely what needs to happen.