Expert Reaction: Budget 2017

Posted on 8 March 2017

Dr Michal Horvath, lecturer at the University of York's Department of Economics and Related Studies, and Dr Kevin Farnsworth, from the Department of Social Policy and Social Work, offer their expert reaction to the 2017 spring Budget:

Dr Horvath said: “Relative to previous budget announcements, there are only minor adjustments in both the economic and budgetary outlook for the UK.

"The big change that happened in the autumn was, of course, the decision to impose less austerity on the UK economy compared with plans made earlier; the economy and the budget appears to be on track to deliver the new target figures that the government imposed in November.

"In a sense, no ‘big’ news is welcome news, but on the other hand, the calmness surrounding the budget may give a false sense of security.

"The budget and the outlook for the economy and public finances are based on the assumption that Britain's trade with the EU will be relatively trouble-free after Brexit.

"An eventual 'hard-Brexit' outcome would significantly hit economic growth (at least in the next few years) and lead to either higher public indebtedness or even more austerity if the government would stay committed to its targets.

“Similarly, the projections of economic growth and government revenues are based on the assumption that immigration will continue to be roughly double of where the government declares it wants it to be - below 100,000.

"This is important because income per head in the UK is growing at half the rate of national income, meaning that a large part of economic growth and indeed government revenues depend on continued growth in population which now mainly comes from immigration.

"Productivity growth in the UK is very low and there are currently few reasons to be optimistic on this in the future.”

Unexpected boost

Dr Farnsworth said: "The biggest surprise of this budget is that the most significant factor that affected it wasn’t mentioned at all. Not only did the chancellor not mention Brexit, it is not immediately obvious how any of his announcements connect directly to it either.

"I would have expected a boost to regional development or support for new businesses along the lines being called for by the car industry. Usually, an unexpected boost to the finances – borrowing is set to be £26 billion lower than previously predicted by the end of this parliament as a result of stronger than expected growth – would provide some scope for new policies.

"But it gave the chancellor little wriggle room today. This is in part because he wants to reduce borrowing in future. But it is probably more to do with the fact that he wants to give himself more flexibility as the government prepares for Brexit.

"Help is provided for larger businesses – perhaps those most able to leave the UK if they don’t get a good Brexit deal – by way of the further reduction in corporation tax (down to 17% by 2020). In ordinary times, this would be headline-grabbing – the UK already has one of the lowest rates of its competitors. But larger businesses may be disappointed that Hammond didn’t go further. His predecessor, George Osborne, promised to bring corporation tax down to 15% in his budget following the Brexit vote.

"So it’s surprising that Brexit didn’t really feature. We might have expected much more in the way of help, support and compensation for businesses considering their own futures once article 50 is triggered. My guess is that the chancellor is playing a waiting game, with one eye on the potential for greater borrowing to ease Brexit going forward. And such is the level of uncertainty in the future that what he did today amounts to the calm before the storm."