The Autumn Statement is a traditional statement made by the government that serves as a financial report. It is the second made every year, with the first being the Spring Budget. It is given by the Chancellor of the Exchequer, who provides MPs with information about the United Kingdom’s taxation and spending (BBC, 2016). Traditionally, the Budget dealt primarily with taxation while the Statement focuses more on department allocation. The information and data used is compiled by the Office of Budget Responsibility, which publishes its information as soon as the chancellor finishes his/her speech. Last year’s Autumn Statement was given by Philipp Hammond, the current chancellor. The last Statement made a considerable impact upon its listeners because Mr. Hammond declared that the United Kingdom should not aim to have a budget surplus within the next five years as such a number would prove difficult and dangerous to achieve. This is not to say that it is impossible; rather, creating a surplus in such a short period of time with such a high level of uncertainty in the economy is unwise and not feasible at this time.
The government is required by law to provide two economic forecasts due to the Industry Act of 1975. Various chancellors have used this legal requirement to present the forecasts in different ways, including simply pre-budget forecasts and the like. Mr. Hammond has reported in the last Autumn Statement that he plans on making a Spring Statement and an Autumn Budget next year, a result of the need to respond to policy changes early next year rather than a year after. There is no legal impediment for meeting the proposed surplus other than that many of the cuts needed would require Parliament to introduce legislation that imposed new caps on government spending, something which would need to be bipartisan. This would not make it any easier a goal to accomplish, clearly. What is most important about this Statement is that Mr. Hammond is intent on closing a loophole within the UK’s tax structure that allows companies to use tax evasion, similar to the Double-Dutch Irish Sandwich.
Government spending in the UK is meant to achieve several policy objectives; namely, that government spending is meant to help provide a better life for the members of the nation. The UK’s single and largest area of spending is on its pension system, implemented to help the elderly live after a lifetime of work. Following this is its health care spending, welfare, education, and defence, respectively. These various aspects compose roughly sixty-three percent of the government’s spending, with the rest being made of smaller level spending areas. The government also borrows a substantial amount of money, a sum of which is being reduced during the next several years in order to offset the government’s deficit. Chancellor Hammond is continuing with the cuts to welfare that have already been announced, but he faces considerable opposition by Tories that object to the cuts period and members of his party that seek to increase welfare cuts.
However, that does not mean that it is impossible to achieve a budget surplus in the UK’s economy. Instead, it is just the opposite. Now that the recession is in its final stages, it is vital that welfare be capped and controlled, as Mr. Hammond stated earlier. However, Parliament needs to take a stricter stance in order to reduce the deficit. In order to do this, Parliament needs to examine welfare spending, healthcare spending, and other previously mentioned topics. Previously goals set by the Exchequer have not always been met, even by Mr. Hammond’s predecessor (Spence, 2016). This means that Mr. Hammond is under considerable pressure to meet his goals.
The biggest factor in increasing the capacity of the British economy is, as Mr. Hammond stated, by increasing the productivity in the United Kingdom. This will require a significant level of investment and technological adaptation. This is incredibly important, because productivity may help stave off the externalities associated with Brexit. Mr. Hammond suggested investments in railroad infrastructure, roads, bridges, etc. in order to help increase productivity levels in anticipation of the coming years. This spending will increase the deficit but it is necessary and should be done. Several studies exist that detail the productivity levels of the British in comparison to other developed countries (Inman, 2016); indeed, it is crucial towards improving productivity because increasing the level of goods that the average British worker can product per hour will increase GDP provided the same number of hours are worked by the workers in the economy. This is in line with increasing export related funding. It would have been very interesting if the shadow exchequer had addressed this aspect, but unfortunately the gentleman made no mention of it. The lagging exports in the UK economy is a perfect example of how productivity has declined, and the government faces considerable pressure on fixing this (Allen, 2016).
On top of increasing productivity, Mr. Hammond suggested spending money in areas where the United Kingdom has a comparative advantage. This could be very unwise because it will raise the need for increased amounts of borrowing, but also eliminate the free market from taking its course. The Corn Laws displayed the problems with subsidizing in lieu of comparative advantage; Mr. Hammond has suggested supporting areas of the UK economy where the British perform strongest, but that is rarely a consistent set of industries and is constantly changing with the international environment. Increased investment in these areas could damage the country more than it would help it.
Therefore, Mr. Hammond’s plan is the most feasible option. It is possible to create a surplus for the British government within five years, but the Tory government is following an appropriate path of caution in order to better anticipate the problems associated with the upcoming Brexit. Economists have forecasted only negative externalities associated with Brexit, making caution a wise course of action. If the government wished to, it could create the surplus by taking advantage of a positive growth rate and by slashing welfare spending in order to achieve its target goals while also slashing government spending in the field of education. Theresa May’s government has considered it far more important to proceed slowly, which will provide for the long term stability of the UK’s economy, even if such a move is contradictory to the official position of the party. The shadow exchequer made a key point: the government needs to focus on maintaining a tariff free trade agreement with the rest of the EU after leaving. This will prove vital in regards to expanding the growing British economy, though the feasibility of such an agreement is truthfully under fire if the past negotiations with the EU are anything to show (Chatham House, 2017). Therefore it is not necessarily feasible to have a surplus in such a short period of time, considering the danger in rushing in without properly addressing the needs of the British economy.
Bibliography:
Allen, K. (2016, October 6). UK productivity back at pre-crash level, but lagging behind G7. The Guardian. Available at; https://www.theguardian.com/business/2016/oct/06/uk-productivity-back-at-pre-financial-crisis-level-office-for-national-statistics [Accessed January 12, 2017]
BBC (2016, November 16). Autumn statement: What is it? BBC Business. Available at http://www.bbc.com/news/business-37989374 [Accessed January 12, 2017]
Cadman, E., & Tetlow, G. (2016). George Osborne abandons 2020 UK surplus target. The Financial Times. Available at; https://www.ft.com/content/bde13106-3f7a-11e6-9f2c-36b487ebd80a [Accessed January 12, 2017]
Chatham House. (2017). Preparing for the UK’s Brexit negotiation, Available at; Chatham House, https://www.chathamhouse.org/publications/twt/preparing-uks-brexit-negotiation [Accessed January 12, 2017]
Easton, M. (2015, June 25). Is welfare reform working? BBC UK. Available at; http://www.bbc.com/news/uk-33275936 [Accessed January 12, 2017]
Inman, P. (2016, November 24). Why is UK’s productivity still behind that of other major economies? The Guardian. Available at; https://www.theguardian.com/business/2016/nov/24/why-is-uks-productivity-still-behind-that-of-other-major-economies [Accessed January 12, 2017]
Spence, P. (2016, April 21). Deficit figures an embarrassment for George Osborne as he misses targets set last month. The Telegraph. Available at; http://www.telegraph.co.uk/business/2016/04/21/deficit-figures-an-embarrassment-for-george-osborne-as-he-misses/ [Accessed January 12, 2017]
