The Autumn statement and contradictions of Brexit September 1, 2016Posted by WorldbyStorm in Uncategorized.
I’ve mentioned before that I like Larry Ellliott in the Guardian – he’s a calm, thoughtful pro-Brexit voice, unusual when compared to many others arguing that line. That said, I’m not entirely convinced by his latest column from Sunday where he writes about the forthcoming Autumn statement from UK Chancellor Philip Hammond.
Elliott places more faith in the latter figure to do the correct thing than some might feel is warranted. And there’s a small quibble I have which is that shot through Elliott’s analysis is the rather disconcerting seeming belief that Brexit has happened. That clearly isn’t the case.
But more important is it me or is there a certain unease in his analysis?
Philip Hammond is the new occupant of 11 Downing Street and he has some big calls to make. Is the economy in need of a post-Brexit boost? If it is, can the job be left solely to the Bank of England? If not, can the Treasury take up the baton and at what cost to the public finances? If so, should the stimulus come from lower taxes or higher spending?
The answer to the first question is yes. Growth in the second quarter was reasonably robust at 0.6%, and the indicators since the referendum on 23 June have shown that the economy has held up better than most people anticipated.
In part, though, that has been the result of policy action already taken by the Bank of England and by the expectation – fostered by Hammond – that there will be more to come in the autumn statement.
But that places a lot of faith in what is, after all, a Tory Chancellor. And he notes that Hammond may take the option of a VAT rate cut rather than public spending. Yet Elliott believes the latter is the correct way forward. I think he’s probably correct. But… and here it is very revealing where his thoughts lead him… he bangs up right into a contradiction of this supposedly post-Brexit world.
All in all, Hammond is spoilt for choice. Public investment is a better option for a stimulus than a VAT cut because it provides assets for the future, improves the economy’s long-term growth potential, and generates a stream of income that ensures the investment pays for itself. The deficit, currently 4% of GDP, will rise in the short term but come down over time.
Boosting public investment is not without its problems for the government. Despite all the talk about shovel-ready projects, it would take time for extra spending on infrastructure to show up in the growth figures. There are two other difficulties. One is public opposition to new railways and housing. So-called BANANAism (build absolutely nothing anywhere near anyone) is strong. The other is that the construction sector has a massive problem with skill shortages and the only realistic way to find the workers to build the new homes and lay the new tracks would be to import them from overseas.
Ooops. And here I think we run into a further problem. Politically Brexit is much much more than the enormously complex issue of disentangling from the EU. It is also about public perceptions. And one of the key public perceptions and one with particular currency in the UK polity is… immigration, whether from EU or non-EU states. ‘Importing’ those folk from ‘overseas’ runs directly contrary to the narratives of Brexit and when added to the antipathy for public expenditure displayed by Tories in general one has to wonder if it is politically feasible.
Of course there’s no contradiction logically between ’sovereign decisions’ by a state and increasing immigration. But politically that latter is pure poison in the context of the actual polity as it actually is.
I fear that Elliott is going to be disappointed with whatever is cooked up at the Autumn statement. One has to suspect the fundamentals will be quite some distance from his suggestions.
And I think the contradictions that this single instance points to are applicable more widely and will become increasingly evident in the future as actual Brexit occurs.