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Autumn Statement: Chancellor needs to invest in infrastructure

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Published: 22/11/16

The Autumn Statement is a key event in the Chancellor’s calendar but is typically an affair that passes many by without fuss. However, the media spotlight will be on Philip Hammond during his first statement since his appointment and the Brexit vote.

As Mr Hammond opted not to declare an emergency budget this marks the new Chancellor's first official address to the houses of parliament and the public on the progress of the economy since George Osborne’s departure following the referendum.

Philip Hammond would have had a clear plan for the autumn statement; setting out his economic mantra before the 2017 budget. It is a chance to report that the economy has grown by 0.6%; in sharp contrast to the doomsday predicted by some economists.

However, the High Court ruling preventing the Prime Minister Theresa May from triggering Article 50 without a parliamentary vote puts the whole Brexit timeline seriously at risk and potentially changes Mr Hammond's statement.  This ruling alone presents a significant risk for the economy; uncertainty and movements in the currency markets are likely to remain at an all-time high since the 2008 financial crash. Donald Trump’s shock victory in the US election marks an even greater period of uncertainty for global financial markets.  

Predictions of the economy slowing and going into recession mean the Chancellor will be keen to get us spending. The last time Britain faced such a crisis the Chancellor of the day, Alistair Darling, opted to cut VAT to 15%.

This provided a temporary boost and while this may be popular with the masses it won’t make Marmite any cheaper as many of the basic foods which have been widely reported to increase in cost following the fall in the pound do not currently incur VAT. With this in mind, the Chancellor is unlikely to signal a cut in VAT and therefore needs to utilise some of the other economic weapons in the Treasury’s armoury.

It seems all but inevitable that the Government will be forced to abandon the key Conservative manifesto pledge to operate the budget at a surplus, to spend less than the Government collects from taxation.

Nissan’s announcement that it will maintain investment in the UK to produce cars at the Sunderland plant was welcome news. It will be good news stories like this that the chancellor is keen to promote,  especially from private firms nervous about investing long-term in the UK without understanding the implications or meaning of Brexit, apart from of course that ‘Brexit means Brexit’.

There is also the US election to consider following Donald Trump's shock victory last week.

In the run up to the election Trump notably remarked that the UK would be at the front of the queue to negotiate a trade deal. Closer ties with the US could provide reassurance to large companies that the UK is an attractive place to do business.

The Bank of England’s decision to reduce interest rates to 0.25% doesn’t provide much room to manoeuvre if the economy were to fall into recession.  One of Theresa May’s key pledges when she became Prime Minister was to showcase the Conservatives as a party for all. If the Conservatives truly want an economy that works for everybody it’s going to take considerable investment. It’s time to breakout the cheque book and invest in infrastructure, with the most likely beneficiaries the energy and renewables sector.

In September, the Government gave the go ahead for the new nuclear plant at Hinckley Point in Somerset which will create thousands of jobs during its construction.

And there are infrastructure options a bit closer to home.

Could the proposed Sheffield to Manchester tunnel be back on the Chancellor’s agenda?  We'll have to wait until tomorrow to see. 

The author:

Sean Kemp

Sean Kemp is a senior lecturer in banking and financial management at Sheffield Business School

"It seems all but inevitable that the Government will be forced to abandon the key Conservative manifesto pledge to operate the budget at a surplus"