Pre-Autumn Budget 2017 - Things to look out for

Photo by Sgt. Aaron Hostutler, U.S. Marine Corps (Flickr) / CC BY

It's time for red boxes, stats galore and best-laid plans for the economy. That can only mean one thing: it's almost Budget Day.

Philip "Spreadsheet Phil" Hammond, Chancellor of the Exchequer is to give his first autumn budget, laying out the expectations for growth, government spending and a bunch of other statistics, along with a handful of eye-catching policy announcements to chew on. What issues are at play going into the new budget?

1.) Expectations for growth may be lowered

One of the main topics that will be spun during and after the budget is the forecast for UK GDP growth from 2018 and beyond. In days of old, economists estimated that the UK economy had a trend growth rate of about 2.8% per year. Much of that was thanks to growth in the labour force, but the bulk of the figure stemmed from productivity (the measure of how productive UK workers are). However, productivity and by association, GDP growth in general have taken a bit of a knock since the global financial crisis in 2008.

Productivity is a structural economic component that takes years to shift in a meaningful way. (As a sidenote, President Trump claims he can shift US GDP growth from 2% to 4% or higher, but is unlikely to do so for the following reason). Labour force growth, another major component of economic growth, is a demographic/social issue. Governments have much less control over how the population shifts within a country's borders, unless they adopt draconian policies like one-child policies or severely restrict immigration.

Bringing this back to the UK's situation. Productivity growth has averaged just 0.8% a year since 2010. Growth in the labour force has fallen a bit to 0.5% in recent times. Combine productivity with labour force growth and you get a possible potential growth rate of just 1.3% for the UK. That's right, potential growth is likely to be half what it once was. One of the things to watch out for in the budget is the likelihood of the forecast growth being below 2%, something that Chancellors would have thought unthinkable in the past.

2.) The budget deficit persists

Since the early 2000s, the UK government has consistently spent more money than it received in tax revenues. As a result, it has borrowed billions of Pounds, sending the national debt above £1.6trn. The financial crash blew a hole in the government budget, causing an annual deficit of over £150bn in 2009. In recent times, the Tory-Lib Dem and now Tory governments have whittled it down with a combination of gruelling spending cuts and controversial tax rises. The last Chancellor pledged to eliminate the deficit by the time of the 2015 election. The 2015 election came and went and the government is still running a deficit of about £40bn since April 2017.

Fresh data today may provide a headache for the Chancellor. Borrowing was marginally higher than expected in the latest release. We have just a few more hours to wait before we see what numbers the Chancellor will pull out of his red box. Can he make sure he pulls the budget itself out of the red too?

3.) Unemployment is down but wages are falling in real terms

The Chancellor made a gaffe over the weekend on the subject of unemployment. Contrary to his choice of words, 1.4 million Brits are currently out of work. That equates to about 4.3% of the labour force, a level not seen since the mid-1970s. Sounds pretty remarkable on the surface, but what's happened to pay packets for those in work? As unemployment hits this seemingly golden low number, wage growth has failed to pick up, which you'd expect if the labour market was tightening. Since 2008, wages for those in work have failed to keep up with inflation. Wages grew briefly in real terms between 2014-16, but much of this was thanks to a fall in oil prices during that period.

Following the fall in the Pound after the EU referendum, wages have resumed a decline in real terms for many months now. For public sector workers, wages have been frozen close to 1% for years, so the squeeze has been virtually constant since 2008. Private sector workers saw marginally higher wage growth during the same period, but even they are a bit out-of-pocket. Falling wages matter because they supply the Chancellor with tax revenue. If a significant proportion of the working population are seeing wages fall or if they fail to even have a salary high enough to be taxed, his numbers won't add up going forward.

4.) Relationships between PMs and Chancellors matter

The state of a relationship between the occupant of Number 10 and Number 11 can make or break a government. In the Thatcher era, it turned toxic. The Blair years were marred by the tension over Tony Blair's plans after leaving Number 10. David Cameron and George Osborne enjoyed a steadier relationship over 6 years, but when the country voted to leave the EU, they were gone in quick succession.

Theresa May allegedly considered sacking Mr Hammond in the event of a Tory majority in the June elections, according to the Daily Mirror. Obviously this failed to come to pass, and he remains in place for now. This gives the Chancellor and the PM a less than lukewarm set of relations this time round. The budget is seen as a test, a moment of truth for the Chancellor to salvage the government and provide a statement of intent about the government's objectives as Brexit negotiations fill the headlines. One more slip-up and Mrs May could consider replacing him.

Budgets are tests for economic competence of governments. It's hard to keep up-to-date on every economic statistic or to follow every forecast and point out where it went wrong. However, budgets do matter and are often defined by amusing or seemingly minor announcements, such as George Osborne's so-called "pasty tax" from the budget dubbed by his detractors as the "Omnishambles" budget. It all depends on what comes out of the Chancellor's mystery red box...

Is the government losing its grip?

Photo by © UK Parliament/Jessica Taylor (Flickr) - CC BY

It would be an understatement to say the government has had a bad year; there's still room for things to get even worse before Christmas.

There was a time in the aftermath of the 2015 general election when the Tories appeared unassailable. They had finally broken the curse of the wilderness era and managed to win a majority of seats (albeit a narrow majority). Cameron was riding high in a warm spell of rising real wages. Inflation was at its lowest levels since 1960, when another old Etonian had occupied Number 10, Harold Macmillan (or "Supermac" as the press dubbed him).

Events in the last twelve months have broken this cosy picture asunder. Wages have been falling following the Brexit inflation spike. The economy is still growing but this is more down to the quick-response policies of the Bank of England in the aftermath of the EU referendum. The Pound in our pockets is just what it once was, especially after the referendum. It's gained 9 cents against the Dollar since the October 2016 trough so it's not plumbing the depths right now but millions of Brits have felt their money falling that bit shorter abroad since June 2016.

With this prolonged spell of falling real wages in mind, it's no wonder the snap election was such a disaster if you really think about it. The feel-good factor in May 2015 was long-gone and a new mood of uncertainty has crept in. In place of optimism, the British right-wing allowed itself to adopt a defensive and prickly demeanour. 

The left initially seemed too busy being at war with itself to notice but once Mr Corbyn had cemented his place as Labour leader in the summer of 2016, things seemed more set-in-place. The sections of the press in May's favour spoke of crushing the saboteurs. Judges were dubbed "enemies of the people" and untruths of the referendum campaign (£350m a week et al) suddenly dropped off the headlines. Brexiteers have viewed any moves to scrutinise the Brexit process as sabotage.

The failure to clinch victory in June 2017 served as a shock to the Tory party's nervous system. The populist tide that ensured a Leave victory and Trump's ascent to the White House has now gridlocked the British political system. Discontent has since started to bubble inside the Tory party, to the point where even the Foreign Secretary seems to feel bold enough to dictate the terms of Brexit in a leaked memo to Mrs May. 

It's impossible to speculate on just how many Tory MPs wish Mrs May to stand down. 15% of Tory MPs (48 as of 8th June) are required to hand in a letter to the 1922 Committee chair to trigger no confidence proceedings.  Only the committee chair knows exactly how many letters are on file. However, the Daily Mail reports that as many as 40 MPs may be prepared to do so.

Looming budget to heap the pressure on Downing Street

At the point where the government is in desperate need of respite, the clock is ticking down to the next major hurdle: the autumn budget is unveiled in ten days. Following a grim assessment on the state of the UK's productivity by the Office of Budget Responsibility, it would be reasonable to expect to see a downgrading of UK growth forecasts and a worsening fiscal picture.

Weak wage growth feeds into lower tax revenues. Weaker-than-previously-expected productivity in the future will likely make the UK's national debt a greater burden as a proportion of GDP. Fiscal hawk Brexiteers expecting some kind of Brexit budgetary dividend are setting themselves up for a grand disappointment.

With interest rates finally seeming to be on the rise again, the economy could soften from here. Rates typically rise to encourage saving instead of borrowing. Consumer spending may wane as households tighten belts. Mrs May and Chancellor Phillip Hammond will have to make even harder choices with a paper-thin grasp on control in Parliament as the economy possibly begins to slow. 

The government might be inclined to raise taxes and try and keep the public finances lean in the event of weaker growth. A potential rise in diesel duty has been reported in recent days. It might be pursued promote greener sources of energy. History may start to repeat itself in an economic sense with fatal consequences for the governent. In 1987, the Tories were riding high as the economy boomed after tax cuts and almost a decade of Thatcherism.

Within a year, things got out of hand. Rising inflation by the summer of 1988 pushed Thatcher into a corner and the government responded by hiking interest rates as a knee-jerk reaction. This caused the economy to enter a soft landing; growth slowed, discontent grew and the feel-good-factor was gone. The government began losing its way, introducing toxic policies such as the Poll Tax, one of the most unpopular taxes in British history. Rate hikes in 1988 had the effect of deflating a housing bubble that had developed during the Thatcher era. The Gulf War oil shock of 1990 was the final straw that broke the weak economy's back, sending the UK into a full-blown recession.

The Tories find themselves trapped in a corner again. The economy is likely to soften from here, so any shock could spell trouble. A new election before 2022 will simply compound the sense of electoral fatigue in the country. The Tories might be inclined to wait and see, in the hope that the situation magically rights itself. Unless the UK undergoes a productivity miracle, that remains an increasingly distant chance.

Boris Johnson, digging for Brexit

Photo by Peter Adams

"If you find yourself in a hole, stop digging" - Anon

The quote above is an old adage, sometimes referred to as former Chancellor of the Exchequer Denis Healey's First Law of Holes. Translated, it essentially means that when you are trapped in an unsustainable position on something, it's best to just admit it and stop dragging it out.

Boris Johnson, UK Foreign Secretary to Her Majesty's Government has surfaced in a flurry of articles in the last few days, having invoked a campaign message from the Vote Leave campaign. He insists that the UK is still in a position to get £350m spare each year to spend on the NHS when it leaves the EU. The problem is that his pledge is built on flawed numbers. The Vote Leave campaign erroneously asserted that EU membership cost the UK something akin to £350m per week, or £50m per day.

Fact-checking website Full Fact debunked this claim almost 2 years ago in the run-up to the referendum, citing the UK Statistics Authority. The number is not a fact, they claimed, saying that it is "potentially misleading". How is this so?

Photo by Peter Adams

Firstly, the UK has received a rebate from the EU for years. The UK also gets some of the money it puts in back from the EU in the form of EU spending on things like agriculture and regional development, to alleviate poverty in the UK's poorest regions. This money we receive back effectively cuts the so-called £350m a week figure roughly in half, according to Full Fact number crunchers.

The Foreign Secretary's comments come at a sensitive time in the life of Theresa May's fragile premiership. Having failed to secure a majority in the snap election in June, Mrs May has since vowed to stay on as Prime Minister until at least the next election, due in May 2022. She made it through the summer, but her poll lead has evaporated almost entirely. Some polls put Labour in the lead by a narrow margin. Some are tied.

The mood within the Conservative Party suggests that the PM's vow to stay might not come to pass, if the party stays true to its ways. Ailing or weakened leaders have typically not lasted a terribly long time and once they lose that shine, the party can make dramatic if not ruthless decisions to ensure its own survival.

In November 1990, Margaret Thatcher vowed to "fight on...fight to win", after narrowly failing to win the first round of a leadership ballot. She resigned as Prime Minister the next day. In October 2003, leader Iain Duncan Smith made an attempt to rescue his failing leadership when he addressed the party faithful at the 2003 conference, saying "I promise you - I will fight, fight and fight again to save the country that I love". He was ousted as leader within the month.

The Foreign Secretary's words come as a form of enticement to leave voters who need encouragement or better still, a reason to vote for the Tories. The election served as a re-alignment for the parties, with UKIP's collapse offering millions of votes to the main parties in a once-in-a-generation opportunity. UKIP is now in the process of evaporating into a super-concentrated version of itself with a smaller audience; it is too busy holding yet another leadership ballot, the third since the referendum, to be in a position to provide meaningful resistance to the main parties' views on Brexit.

Much of this benefited the Tories but increased engagement from younger voters has helped Labour avoid falling behind too much, despite its internal inconsistencies over Brexit. Economic weakness as the Brexit negotiations intensify could be a crunch point for the May administration. Low interest rates have helped keep job creation going but wages are falling in real terms.

Pressure to scrap the 1% wage cap for public sector employees has grown considerably, especially in the NHS, where some have called for a rise of 3.9% to offset the real terms fall in earnings over the last few years. Mrs May's claim that there is no "magic money tree" looks very difficult to comprehend when considering the sudden availability of money to secure the DUP deal and looks like a bad joke, when you realise that £140m of public money got spent on a snap election that the governing party didn't actually win.

The Tories are stuck in a hole and Brexit could bury them when people begin to realise it has resulted in them becoming materially worse off than they otherwise would have been. The Eurozone economy, labelled sclerotic and weak during the referendum campaign is actually growing faster than the UK economy now, according to the latest data. This could be just the beginning of a new chapter in UK history, where the UK economy grows and the government is able to avoid technical recessions, but when it surveys the performance of the UK relative to its peers, it will see how we have underperformed our neighbours, having cut our nose off, despite the face. In this hole, the Foreign Secretary can't resist the urge to get his shovel out and test the ground to dig just a little deeper.

Wet or Dry: Can the Tories stand the heat?

Photo by Peter Adams 

As the UK swelters during a week-long heatwave, attention turns to Westminster for the Queen's Speech, the traditional state opening of Parliament.

One week on from the shocking events at Grenfell Tower, such pomp and ceremony feels more at-odds with the mood of the country than before. A series of terrorist attacks in multiple locations in the last couple of months have also changed the tone of political debate, and brought security and defence to the top of the agenda.

Rarely have we seen a government going into this ceremony with such a disappointing draft of proposals. The Conservative project for this year began to come undone during the 2017 election campaign when the social care plans were unveiled, and they began jettisoning parts of the manifesto before a single vote had been cast.

Cancelling free school meals? Gone. The social care plans? Also gone. Grammar schools? It's now up to Parliament to decide how best to improve educational standards as members see fit. Free vote on fox hunting? Not on the agenda anymore. But what about Brexit? The Great Repeal Bill has now been included into the speech, as the UK prepares to leave the European Union, following the triggering of Article 50. Hard Brexit? It might be safe to say the appetite for this is waning. Some of Mrs May's own MPs (as many as 30) have told her to rethink the strategy of no deal being better than a bad deal. Deals with the DUP might revolve around the UK's membership of the Customs Union. Work in progress as of writing.

The main manifesto pledges that have been excised in this Queen's speech are Mrs May's social policies; Mrs May's first speech as Prime Minister was one where she pledged to try and amend the social injustices in the country. Instead, she has bound her own hands, by losing her majority in a snap election she pretended she wouldn't call. Her pre-election promises just don't have the support she needs to get them through Parliament.

The last time the UK had a minority government presenting a Queen's speech was in 1978. James Callaghan was the Labour Prime Minister at the time, presiding over a delicate Labour minority government, which had backing from Liberal MPs in a confidence and supply deal known as the Lib-Lab pact. The deal only lasted a few months and the Liberals eventually withdrew. Callaghan decided not to call an election in late 1978, something Gordon Brown would do himself in 2007. This decision backfired, and following the Winter of Discontent, the emboldened Tories under Mrs Thatcher called a vote of no confidence; they won the motion by one vote. The rest is history.

Minority governments have a habit of being snuffed out by divisions within the governing party sooner or later. Labour's 1979 defeat precipitated a full-on split between Bennites and its centrist faction and led to the formation of the SDP. The resulting chaos this caused plunged the party into a long and weary battle which left deep wounds on both sides.

Mrs May is approaching the DUP in a bid to keep the Tories in government, but she has more to lose from any deal than the DUP. The deal would risk muddling the peace process in Northern Ireland, as the UK government is now likely to be beholden to one of the factions in Northern Ireland's highly sectarian political environment, when it should actually be remaining above the fray and trying to maintain stability.

Mrs Thatcher and her successors as leader have presided over a Conservative Party split between Wets (who favoured a closer relationship with Europe) and the Dries (the original Eurosceptics). Now that the Brexit timetable has started and the end result edges closer, the Tories may find themselves split between softer Brexit and those who are keen for a more protectionist hard Brexit, whether they want to be or not.

The Conservative Party now faces a long summer of tough decisions. Mrs May's tenure is unlikely to last to 2019 when Brexit negotiations end, as suggested in an article by Channel 4's Gary Gibbons. Tories have a habit of removing ailing leaders, with mixed results. The party is shifting from within, as possible contenders for Mrs May's successor sound out Parliamentary colleagues. Old divisions within the party might start to re-emerge like dormant fault lines. The summer of 1976 is remembered for its intense heat and longevity. The London clay on which the city rests upon began to crack as the water boiled away. The summer of 2017 may cause cracks to emerge in the Tory party's facade. Can they stand the heat?

Things UKIP probably doesn't want to talk about before the Stoke-on-Trent by-election

Photo by Euro Realist Newsletter / CC BY

Stoke-on-Trent Central should be a piece of cake for UKIP this Thursday. It is something of a baptism of fire for new leader Paul Nuttall, who also happens to be the candidate for said seat. Labour are sliding to as low as 24% in some polls, with a new ICM one showing an astonishing 18-point lead by the Conservatives. Labour hasn't done this poorly since the bowels of the 2008-09 recession, just before it started its latest spell in opposition. Stoke-on-Trent Central is one of the most eurosceptic seats in the country, so why are UKIP floundering at the moment?

1.) Paul Nuttall's presence at Hillsborough is in the spotlight (for all the wrong reasons)

Mr Nuttall has claimed to have been present at the April 1989 disaster at Hillsborough, in which almost 100 people losts their lives and another 800 or so were badly injured. It was an incident which turned Liverpool against the Sun newspaper for its accounts of the event, which claimed fans were urinating on medics and picking pockets of victims, accusations which have now been seen by many as fabrications in stark contrast to the accounts of survivors themselves.

Paul Nuttall was aged 12 and has consistently claimed he was present at the stadium on the day of the disaster for much of his political career. Controversy flared up over a week ago, when the Guardian posted an article which investigated his story and presented evidence which appears to be at odds with it. Mr Nuttall's own MEP website even claimed he had "lost a close friend" on that day, but it has since emerged the article had been written by a press officer, who has since tendered her resignation. The entire website has since been closed for maintenance without explanation.

To make matters worse, UKIP donor Arron Banks attracted criticism for telling his Twitter followers that he was "sick" of hearing about the story, provoking many with the comment: "It was a disaster...not some sort of cultural happening". In the last few hours, two UKIP officials have been reported as having quit the party for what they termed Mr Nuttall's "crass insensitivity".

As of 20th February, Mr Nuttall's website remains "offline for maintenance"

2.) UKIP's own Twitter page has passed off a Bolton campaign picture as a Stoke by-election one

Source: UKIP Twitter page

Photo by Google Street View

On 18th February, UKIP's official Twitter account posted a snap of what it claimed to be were a group of leafleters/general campaigners on the ground for the Stoke-on-Trent Central by-election. However, eagle-eyed residents in Horwich, Bolton were quick to point out that the picture had apparently been taken in the carpark of the Macron Stadium in Bolton, some 50 to 60 miles north of Stoke-on-Trent.

It's perfectly understandable to find this point a bit nit-picky, but it does help to get the town name right for a campaign photograph. So far, it's not clear if the UKIP Twitter page has acknowledged the discepancy yet.

3.) Accusations concerning an incident involving a pensioner and a leafleter in Stoke-on-Trent emerging

Over the last couple of days, allegations have surfaced of an incident in the constituency between a 73-year-old resident and a man purported to be a UKIP leafleter on the ground. The man is alleged to have tried delivering the woman a leaflet, then he is alleged to have proceeded to have urinated on the house before the woman saw it on CCTV and went outside to confront him. A relative of the woman shared footage of the alleged incident on Facebook, and it has since been carried as a story on a couple of publications including the Mirror, Thomas Pride and Skawkbox.