Wednesday, 3 March 2021

UK economy “resilient” despite £122bn hit to finances

The UK economy is forecast to be £122bn worse off by 2020 than previously thought, the Autumn Statement shows. Chancellor Philip Hammond also said growth predictions had been cut as a result of the Brexit vote but vowed to make the UK economy “resilient”. As widely expected, he unveiled a fuel duty freeze and more cash for housing, transport and digital infrastructure. Labour said the government was “unprepared and ill-equipped” for Brexit and had “no vision”. In his Autumn Statement to MPs Mr Hammond said the UK”s deficit would no longer be cleared by 2020 – with a target instead of “as early as possible” afterwards. Mr Hammond said the statement – his first major Commons event as chancellor – came exactly five months after a Brexit vote which “will change the course of Britain”s history”, making it “more urgent than ever” to tackle long term economic weaknesses.

Presenting the Office for Budget Responsibility”s forecasts, he said borrowing would hit £68.2 billion this year and £59 billion next year compared with the March forecast of £55.5 billion and £38.8 billion. The OBR said the referendum result meant potential growth in the current Parliament would be 2.4 percentage points lower than forecast in March. Government finances are forecast to be £122bn worse off than in the spring. Among the chancellor”s announcements were: Mr Hammond said the government would prioritise “additional high-value investment” on infrastructure, which would be funded by additional borrowing. A new £23bn “national productivity investment fund” would tackle the UK”s “shocking” productivity gap with other countries, he said. The government has also announced an extra £2bn a year for science by 2020, a crackdown on compensation claims for whiplash injuries aimed at reducing motorists” insurance premiums and £1.3bn to improve roads. Mr Hammond paid tribute to his predecessor George Osborne but said he would now follow three new fiscal rules: to balance the books “as early as possible in the next Parliament”, for public sector net debt to be falling as a share of GDP by the end of Parliament and for welfare spending to be within a cap.

Benefit changes

At the end of his speech, he revealed the Autumn Statement would be scrapped in future years, saying there was no need for major tax changes to be made twice a year. Instead, he added to laughter from MPs, there would be a “Spring Statement” where the government would respond to OBR forecasts, and the Budget would take place in the Autumn. It is not clear whether that means there will be two Budgets in 2017. Changes to Universal Credit – the flagship single payment being rolled out across the UK – will reduce the “taper rate” from 65% to 63%. This means benefits will be withdrawn at a rate of 63p for every pound of net earnings. The government said about three million households would benefit. But the Resolution Foundation think tank said their gains would be “small fry” compared with previously-announced cuts to the work allowance, which is the amount people can earn before they start to lose their benefits.

On housing, the government said it would relax rules on how affordable housing funding could be used and promised additional measures in the Autumn Statement. It said banning letting agents” fees would help 4.3 million private rental tenants. Citizens Advice welcomed measures on the agents” fees and on workers” wages but said more should be done to help “just managing families”. Labour, which has been calling for agents” fees to be banned, said: “Any change of heart is welcome” but added that the government had “no plan” to fix the housing crisis. Shadow chancellor John McDonnell said the reduction in the Universal Credit taper rate would be “too little, too late for those working families who have had to bear the brunt of six wasted years of failed Tory economic policies”. “Despite all their rhetoric last month, and before the ink is even dry on the Autumn Statement, it looks like it will be jam tomorrow for working people under Theresa May and Philip Hammond.” The SNP said the biggest threat to the economy was “uncertainty caused by this UK government and the threat of a Tory hard Brexit”.

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