Hunt’s message for Britain is sobering and short on optimism

There is an old rule of thumb that says Bud­gets well received on the day, very quick­ly unrav­el. Judg­ing by the next morning’s very crit­i­cal head­lines, that should make Chan­cel­lor Jere­my Hunt’s Autumn State­ment a run­away suc­cess.  Times are far from nor­mal though.  Over the past three months, Britain has had three prime min­is­ters and four Chan­cel­lors.  Over the past two months, Britain has had two major ‘Fis­cal Events’, Bud­gets in all but name, which have veered as wild­ly in polit­i­cal ide­ol­o­gy as they have in eco­nom­ic reality. 

In Sep­tem­ber, Kwasi Kwarteng announced a huge, unfund­ed, £30 bil­lions of tax cuts (includ­ing ditch­ing the 45p brack­et for the high­est earn­ers). His imme­di­ate suc­ces­sor has not only reversed these mea­sures but also decid­ed to raise tax­es by some £55 bil­lion (includ­ing reduc­ing the lev­el at which earn­ers start pay­ing that 45p rate).

Miss­ing from Kwarteng’s ‘Mini Bud­get’ was, of course, the Office of Bud­get Respon­si­bil­i­ty (OBR) fore­cast. These num­bers were omi­nous­ly present along­side Hunt’s announce­ments and may well prove to be the most sig­nif­i­cant indi­ca­tion of the eco­nom­ic envi­ron­ment over the com­ing months and indeed years. They con­firm the sig­nif­i­cant reces­sion ahead and, per­haps more sober­ing, the warn­ing that Britons are going to expe­ri­ence one of the sharpest falls in liv­ing stan­dards in com­pa­ra­ble his­to­ry. Our econ­o­my is set to shrink by around 2% while our liv­ing stan­dards are expect­ed to fall by 7% — that wipes out the last eight years of growth. 

The OBR report high­lights that spend­ing on debt inter­est has spiked, just as bor­row­ing ris­es and this is com­bined with rag­ing infla­tion and mount­ing debt held by the Bank of Eng­land. This is all cost­ing the British econ­o­my dear­ly. To com­pound the country’s prob­lems, the OBR assumes that Brex­it has low­ered the UK’s trade inten­si­ty by some 15% (though you will find no men­tion of that in Hunt’s statement).

So, there is a shrink­ing econ­o­my com­bined with rag­ing infla­tion, an ener­gy cri­sis and tax ris­es which are all hit­ting the dis­pos­able income of house­holds. Look­ing around, the OBR report and Autumn State­ment con­firm what is becom­ing blind­ing­ly appar­ent. The signs of eco­nom­ic down­turn are already there to see: prof­its warn­ings, retail insol­ven­cies, slump in build­ing and even lay­offs in the tech sec­tor. Busi­ness as well as con­sumers need to pre­pare them­selves for a bleak peri­od ahead.

But while eco­nom­ic fore­casts are made in the aggre­gate, expe­ri­ences will not be the same.  There will be sec­tors which do bet­ter than oth­ers and busi­ness­es with­in trou­bled sec­tors (such as retail) which are able to take advan­tage of the tur­bu­lence that destroys their com­peti­tors. And the down­turn into recov­ery will not be uni­form across the coun­try. There will be regions, includ­ing Lon­don and the South East, which expe­ri­ence a short­er lived con­trac­tion than oth­ers.  To his cred­it, Jere­my Hunt avoid­ed cut­ting cap­i­tal spend­ing which might have proved an eas­i­er polit­i­cal choice but would have com­pound­ed down­turn espe­cial­ly in the North.

Hunt deliv­ered some­thing of a respon­si­ble ‘Bud­get’, cer­tain­ly by com­par­i­son to his pre­de­ces­sor and in a short peri­od has brought a degree of sta­bil­i­ty to a chaot­ic sit­u­a­tion caused by his own gov­ern­ing par­ty.  It was short on polit­i­cal the­atrics or pop­ulist rab­bits pulled from the hat.  But these are not the sort of mea­sures that a gov­ern­ment wants to deliv­er at this stage in the polit­i­cal cycle.  Hunt will nev­er be a pop­u­lar Chan­cel­lor, derid­ed by those on the right of his own par­ty and the press as well as polit­i­cal oppo­nents. And his mes­sage is clear: things will get worse before they get better.