London Property Alliance Chief Economist Alexander Jan gives his thoughts on last month’s economic statement and the WPA Annual Lunch.
In Greek mythology, the gods give Pandora a jar that contained bad things. And as the story goes, they of course, order her not to open it. Pandora perhaps foolishly, disobeys them. As a result, only “hope” is left inside. Last week’s Autumn Statement was a sort of economic version of the same thing. A series of truly depressing announcements escaped from the Chancellor’s red box. He made it clear that Britain is facing a period of belt-tightening and foregone growth that will be the most chastening since the end of World War Two.
Up went taxes (quite a lot). Down went public expenditure plans (although not until 2025). Rising rates mean that by 2027, the government will be spending £100 billion a year in interest payments; the equivalent of today’s education and defence budgets combined. The Office of Budget Responsibility (OBR), a government watchdog, pointed out that real household incomes will shrink by seven percent over the two years to April 2024 wiping out eight years of growth. And to top it all, unemployment – which has been running at record lows until recently – is set to rise by up to half a million. This is bleak economic news by any measure. The Chancellor’s briefcase has indeed become a Pandora’s box.
But where was “hope”? Are there any grounds for optimism? Well apparently there are – and from an unusual source. As the Chancellor in the Palace of Westminster sat down, a mile or so up the road at the Westminster Property Association’s annual lunch, Ed Balls, Labour’s former shadow chancellor, got to his feet. One would be forgiven for thinking the WPA’s guest speaker would be in any mood to welcome the Autumn Statement. But remarkably, that is kind of what he did. Whilst Mr Balls no doubt felt that the mess we are in is at least in part a party political matter, amongst his Tory potshots was a positive message. After some years of playing somewhat fast and loose, government is returning to a degree of normalcy and therefore decency in playing by the rules. In economic policy, this means a reaffirmation of the independence of the Bank of England (first introduced by Labour’s Gordon Brown) and recognition of the scrutiny role of the OBR (a Tory invention). Balls’ point was that whatever the political differences between the major parties, the government’s approach to assessing and dealing with the economy’s problems looks like it is going to be more rules-based than has been the case for some time. Politicians might disagree on how to solve our problems but a reaffirmation of sensible policy making frameworks and the independence of associated institutions would he maintained, help us to find the best way to tackle our national challenges in a more grown-up fashion.
It might be that Mr Balls is overly optimistic. The country is facing an economic storm of unprecedented proportions. Much of what is being proposed will be deeply unpopular with the electorate. But from a business perspective, a return to a slightly more disciplined, rational approach towards economic policy – or at least problem definition – can only be a good thing. That applies too, towards policy for London. Whatever a politician’s tribe, it is hard to imagine a world in which it is considered a good thing to damage the engine of UK growth. It is at the very least, a source of tax surpluses that can be used to balance the public finances and support those in need.
A resetting of the sort Mr Balls talked about means London receiving fair treatment in relation to its business rate burden. It sees ministers and the Mayor coming together in common cause on matters such as infrastructure and growth. It means too, that government might resist more often, the temptation to enact policies that would damage the UK’s only world city for short term political gain.
For the country as a whole, it would result in a more rational debate about the merits and drawbacks of immigration and current trading arrangements with our single largest market. Mr Balls’ message was in many ways, problems can best be solved by creating a degree of consensus as to what they are. Crucially that needs to happen within a framework that recognises the role of independent government institutions and by extension, the value of objective (dare we say expert) analysis in policy-making on the big issues of the day.
A week on from the speech, there are some positive signs. Many London businesses will see the benefit of the rates’ revaluation in full. On Monday, the new transport secretary shared a stage with the Mayor of London to celebrate the first six months of the Elizabeth line. There is perhaps a little more confidence that attempts to help the less well-off will not be designed to damage London.
We may be a long way off seeing the green shoots of economic recovery but if Mr Balls is correct, hope does indeed continue to spring, despite our winter of economic gloom.