Spring Statement 2019: Good news drowned out by Brexit hullaballoo

13 mins. to read
Spring Statement 2019: Good news drowned out by Brexit hullaballoo

On Wednesday, the Chancellor reviewed the state of the British economy at a time of existential political uncertainty. It was as if a conjurer at a children’s party just could not get the ill-mannered children’s attention, writes Victor Hill…

A time of gifts?

When Mr Hammond rose in the House of Commons on Wednesday (13 March), he did so against a backdrop of the most extreme political uncertainty in living memory, cloaked in the miasma of Brexit confusion; but he also rose knowing that he had more headroom (the current term to describe fiscal slack) of any Chancellor since before the financial crisis of 2008-09.

Master Investor Magazine

Never miss an issue of Master Investor Magazine – sign-up now for free!

Read the latest Master Investor Magazine

We knew that he would be tempted to dispense largesse to all those virtuous but indigent spending departments – our frazzled police forces, our over-crowded schools, our barely coping hospitals, our blood-spattered cities – but we also knew that the extent of his largesse would be tempered by doubt about where we will find ourselves on 30 March.

Just 16 hours before he got up to speak, the House of Commons had blown another plumptious raspberry at our long-suffering Prime Minister, rejecting her ill-fated Withdrawal Agreement (Version 2.0) for the second time. (Though this time by 149 votes as against 230 votes on 14 January – you can’t say she isn’t making progress.) And he delivered the statement not knowing the outcome of the second critical vote of the week – on whether no-deal would be taken off the table (though the popular wisdom was that it would). That begged the question of whether a third vote (tabled for Thursday) would seek to extend the 29 March Article 50 deadline (it did) – and, if so, whether 27 European states would agree to that.

So there was, shall we say, a certain amount of background noise around the Statement. Previously in these pages I have pictured Mr Hammond as a mature applicant at a Geordie Job Centre in a Ken Loach movie (Never been near a bloody “mouse” in m’ life, pet…) and as a Victorian undertaker under pressure at a funeral. On Wednesday, I perceived an etiolated conjurer at a children’s party struggling to maintain the attention of a raucous troupe of badly bought-up children hiccupping from too much pop and bilious from an excess of cheap cake.

Public finances – nearly in the Promised Land

The first thing to note is that UK public finances are in a much better condition than we possibly could have imagined just one year ago. (The encouraging figures I shared two weeks ago were bettered.) Borrowing – and thus the fiscal deficit – is down to 1.1 percent of GDP. The prognosis is also better. Normally, the dour old OBR rains on the Chancellor’s fiscal parade. But this year it is forecasting rising growth over the next two years – 1.4 percent next year and 1.6 percent in 2021 – despite Brexit. True, that is not Thunderbirds, but rather Thomas the Tank Engine-style growth: dogged but persistent (and much better than across the Channel where statisticians announced yesterday that Germany is growing at just 0.6 percent). Inevitably, BBC News led with Growth plummets to lowest level since the financial crisis – they didn’t mention that there is a slowdown globally, at least outside the United States. (And even the US is slowing – on which more soon.)

The Chancellor was therefore disposed to untie his purse-strings – but contingently. The conjurer intoned his promises with a caveat – if there is a deal. This suggested that the prime minister considers it possible that the House be asked to pronounce upon her Withdrawal Agreement a third time. In this fast-moving story, it now appears that the third vote will take place next Tuesday (19 March). Mr Hammond also muddied the waters somewhat by suggesting that there could be a modified deal which would secure the support of all parties.

He pronounced that a no-deal Brexit would entail significant disruption to the economy with higher unemployment, lower wages and higher prices in the shops. In contrast, making a deal would result in a dividend, which he hinted could mean spending increases and tax cuts totalling £26 billion. The conjurer was nakedly trying to ingratiate himself with the ill-mannered children by dispensing contingent sweets – though, as we know, ill-mannered children have problems with delayed gratification, so his strategy was of dubious merit.

Fiscal pride

Master Investor Magazine

Never miss an issue of Master Investor Magazine – sign-up now for free!

Read the latest Master Investor Magazine

GDP will grow by just 1.2 percent this year the OBR predicts on account of Brexit-related postponed investment by business. Nonetheless, the fiscal deficit continues to fall faster than expected because rising employment and surging pay rates is generating above-expected tax receipts. (Wages are growing by a stonking 3.4 percent per annum.)

By 2023-24 the deficit will be down to £13.5 billion – £6 billion better than the forecast released last October. And the debt-to-GDP ratio will be down to 73 percent from its current 82 percent. Meanwhile, sustained lower interest rates will reduce the government’s estimated interest costs going forward. One niggle is that the growing cost of unpaid student loans (many extended to EU nationals who then disappear) could negatively impact the structural deficit by as much as £12 billion by 2020-21.

The headroom for fiscal 2020-21 (that’s the difference by which the actual outturn will be below the two percent target) will be £27 billion. Given this unexpectedly rosy fiscal outlook, why did Mr Hammond not propose concrete tax cuts? Because of Brexit politics, of course. Ironically, whatever happens now it will probably be another Chancellor, under another Prime Minister, who delivers the goodies.

Sustainability is the magic word

The only major departmental budget increase confirmed was that the police will get another £100 million to fund the war on knife crime. But there were lots of sweets for the green-minded from a marine protected area (in which fishing will be banned) around Ascension Island to a carbon offset initiative for airlines. Sustainability, the Chancellor declared, will be built into the heart of the UK economy.

New homes built in the UK from 2025 will not have gas boilers or hobs but instead will rely on low-CO2 heat sources such as electric pumps or district heating schemes. I don’t suppose Worcester Bosch was consulted – and I doubt that councils are anywhere near providing district heating schemes – but, it’s a nice green gesture, even if all good chefs prefer to cook on gas.

Feminine sanitary products are to be made freely available in schools (something long-since implemented in Scotland) and plastic packaging is to be discouraged further, which is a fine aspiration. But why not go the whole hog and ban all non-recyclable plastics outright?

PhDs welcome

In post-Brexit Britain anyone with a (hopefully authentic) PhD will be welcome in our science power-house. They will be able to come and go without complex residency requirements.

The Chancellor extended a hand to Britain’s scientific research establishment. We are probably some way away from our fiscal policy being determined by AI – but, in the meantime, the Chancellor is to subsidise a supercomputer at the University of Edinburgh to the tune of £79 million. (He joked that, with pertinent algorithms, it might be able to resolve the Irish backstop. Come to that, it could also write more upbeat speeches for Ms Sturgeon.) In total, there will be an additional £200 million for scientific research.

Parliamentary shenanigans

Master Investor Magazine

Never miss an issue of Master Investor Magazine – sign-up now for free!

Read the latest Master Investor Magazine

The House of Commons can express its antipathy for a no-deal Brexit (by a majority of just 43 on a non-binding motion on Wednesday evening – with four cabinet ministers abstaining on a three-line whip) just as it can express its disgust for modern slavery or its concern about youth obesity. But such motions have no traction in the real world in which we (though apparently not politicians) live.

When the previous House of Commons voted to trigger Article 50 in October 2016 by a majority of 384 votes (498 to 114) it was thereby voting for no-deal if a Withdrawal Agreement could not (for any reason) be secured. Despite the expressed desire to extend Article 50 to 30 June last night (14 March) by 412 votes to 202 there is still a high chance of a no-deal Brexit at 23:00 hours on 29 March – an outcome that I have long argued in these pages is the most desirable.

Even if Brexit is extended until 30 June there is every possibility that there could be no-deal – but three months late. That is why the Europeans will only agree to delay Britain’s departure if the extension could be for at least a year – by which time they calculate the mood may have changed and the UK will give up on Brexit altogether.

Alternative thinking

I promised readers in my column of 22 February that I would make no further comment on Brexit until after 29 March…But it would be remiss of me not to share that some economists think that no-deal could be a once-in-a-lifetime opportunity for the UK.

On Monday (11 March) I attended a Bruges Group meeting in Westminster at which Sir John Redwood gave a barn-storming, impassioned plea for no-deal. He also offered his Brexit Bonus Budget for an alternative (but not so unimaginable) universe in which he was Chancellor. He would tear up George Osborne’s vicious attack on buy-to-let, reducing stamp duties (the revenues from which are declining); he would reverse Mr Hammond’s punitive campaign against diesel powered vehicles which has hurt Jaguar land-Rover (JLR); he would overhaul the VAT regime completely making all environmentally beneficial products (like insulation materials) VAT-free. (Funny how permanent customs union-adoring Labour has gone quiet recently on the tampon tax which is entirely the result of the EU stranglehold on VAT rules.) Sir John would slash business rates and Capital Gains Tax.

Whereas the Labour high command have decided that they don’t want ever to have control of trade and tariff policy (it would be politically risky because the trades unions and the party apparatchiks would never agree), Sir John Redwood would relish full control of tariffs and VAT. He would remove tariffs on all imported automotive components – why should German crankshafts be preferred to Chinese ones? He would also abolish VAT on domestic fuel (introduced by Ken Clarke in 1993).

Eurosceptic economist Gerard Lyons was also there. He pointed out that FDI in the UK, while tapering under Brexit uncertainty, is still leagues ahead of France and Germany. This week, I passed through St Pancras station in London – within 500 metres of which is the world-class Francis Crick Institute (just behind the British Library), the European HQ of YouTube and Facebook’s new 6,000 square feet global data centre. London is clearly going to remain a global hub – despite Brexit.

I also met one of the venerable architects of Thatcherism, Professor Patrick Minford of Swansea University. Prof Minford believes that the establishment has refused to consider the economic benefits of Brexit. Import duties on non-EU foods cost the consumer 20 percent (my favourite example, as regular readers will know, is Kenyan pineapples). The withdrawal of the subsidy to cheap foreign labour by abolishing in-work benefits (Working Tax Credit) for EU migrants would save billions. We could increase competition by reducing regulation – Prof Minford cites MIFID 3 as an entirely unnecessary framework given the UK’s robust prudential regulation of financial services. He calculates that government revenues will rise further to a no-deal Brexit by up to £80 billion a year. No-deal, Prof Minford thinks is a misnomer since there would rapidly be a succession of mini-deals to solve outstanding issues – aviation, haulage, fishing, tariffs – one by one.

Master Investor Magazine

Never miss an issue of Master Investor Magazine – sign-up now for free!

Read the latest Master Investor Magazine

Before Mr Hammond stood up on Wednesday, the Government published the schedule of tariffs that would apply in the event of a no-deal Brexit. Tariffs would be eliminated on thousands of items. (Why did it not do so two years ago so that British business could have planned accordingly?) This substantiates Gerard Lyons’ claim that, contrary to prevailing opinion, the civil service is in fact well advanced in planning for no-deal.

My point is that these outstanding minds regard Brexit as an exceptional opportunity for the British economy – whereas the dismal and depressing government of Mrs May and Mr Hammond regards Brexit as an exercise in damage limitation – geopolitical health and safety gone mad.

How will it all end?

James Forsyth, chief political commentator for The Spectator, speaking last night, thinks that there is just a chance that the DUP may be brought round to back Mrs May’s deal next Tuesday. If they do, then the Moggites might crumble and come on board too – given that what they fear most is to lose Brexit altogether. If vote number three goes against Mrs May then a delegation will be despatched to Brussels to beg for mercy, James thinks, and the Europeans will only agree to extend on the most humiliating terms.

Alas, it is probably now too late to advance the arguments of Prof Minford and others. The British political class has decided collectively that, like Florestan, the prisoner in Beethoven’s Fidelio[i], it would really much prefer to remain in gaol than face the challenge of freedom in the world.

After the Party

Children – especially ill-mannered ones – can be unkind to one another. There is a lot of animosity around right now. The Tory Party has effectively bifurcated like a toxic cell into two new organisms – neither of which is talking to the other. I can’t remember a time when London buzzed with so many gatherings full of gesticulating conspirators fulminating against the enemy. (In case you haven’t noticed – something similar has already happened in the Labour Party too.)

As it happens, I’ve recently submitted a chapter for a new book, currently being rushed to publication, about the future of the Tory Party. Other contributors include Lord Heseltine, Damian Green MP, Peter Hitchens and Prof Richard Gaunt of the University of Nottingham. It’s called Will the Tory Party Ever Be the Same? (answer – No!), and it’s being published by Bite-Sized Books, a disruptive publishing house run by polyglot Paul Davies.

I agree that the country is going through a high degree of tergiversation right now – and if the Remainers have their way, there is much humiliation to come. But I’m still convinced that this last three years has been purgative. Whatever your views on Brexit, we have been having a dynamic conversation that other countries in Europe will never have as they sleepwalk towards national extinction in a moribund economic prison – and economic prisons always become cultural ones…Like my contemporary, Julie Burchill, I regard having lived through these last three years as a unique privilege. At least, as Julie wrote this week[ii], we now know how much the sneering, globalist metropolitan elite despises us.

The Chancellor, despite the feeble magic tricks, left me confident that the United Kingdom has what it takes to get through either a no-deal Brexit or an extension of the agony. Spectator Chairman Andrew Neil shared last night (14 March) that he had recently addressed high net worth investors in the Gulf, the Far East and the USA – and the one thing they all agreed on was that the UK market was undervalued.

The entire political class may be plastered in dung right now; but as I argued here two weeks ago, the British economy is humming along nicely – and there are significant opportunities to pursue – whatever happens.

As Fred Astaire famously sang:

There may be trouble ahead,
But while there’s music and moonlight,
And love and romance,
Let’s face the music and dance…

[i]Ludwig van Beethoven’s only opera, written in 1814 – a product of the Romantic Movement.

[ii]Daily Telegraph, 13 March 2019.

Comments (3)

  • David Rawcliffe says:

    I can only thank god Sir John Redwood is not the chancellor.
    And god save us from the other Thatcherite cretins mentioned

  • Lawman says:

    “plastic packaging is to be discouraged further ……… But why not go the whole hog and ban all non-recyclable plastics outright?”

    Yes. A simple law that, by say 2023, defined plastics must be biodegradable. Rather than pious liberal hand wringing, the power of business encouraged to invest in new machinery, with the outputs having known large demand such that the price will be low; and all for great societal benefit.

  • Sam says:

    Why is that?

Leave a Reply

Your email address will not be published. Required fields are marked *