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Budget 2017: Can building more homes be a shot in the arm for slow-growth Brexit Britain?

Budget 2017: Can building more homes be a shot in the arm for slow-growth Brexit Britain? post image

Rearranging the deckchairs on the Titanic. Fiddling while Rome burns. Or even – if you’re still somehow giddy with the possibilities – gilding the lily.

To say Brexit was the elephant in the room overshadowing the 2017 Budget is a bit like saying Harvey Weinstein has a weight problem.

As we continue to careen towards the cliff edge / sunny uplands, whatever is agreed in the Brexit trade talks – or lack of them – over the next 18 months will dwarf any tweaks Phillip Hammond made to the nation’s steering.

Long-suffering readers know I am not positive. Nor we now learn is the Independent Office of Budget Responsibility – Hammond informed us it has slashed growth expectations for the next five years.

As the BBC reports:

[The OBR] warned that public spending cuts and Brexit-related uncertainty would “weigh on the economy” while the “remarkable” struggle that the UK economy has endured in bouncing back from the 2008 financial crisis, in terms of lost productivity, would also have major dampening effect.

To put the figures into perspective, while there have been three recessions since the early 1980s there has not been a period since then when growth has been forecast to dip below 2% for more than three years in a row.

While Jeremy Corbyn promises a return to the 1970s, Brexit is already set to take us back to the 1980s.

Brexiteers will say these forecasts have been hopelessly wrong for so long, why take any notice of them now? Also, Britain had a productivity problem long before Brexit. And there’s some truth to that.

But you’d have to be very blinkered not to notice that Britain has gone from the top of the G7 table for economic growth to the near the bottom entirely in the wake of the Referendum result.

On theoretical grounds, short of ‘doing a Singapore’ I can’t see how Brexit can boost growth in the next decade. The question is to what extent any deal we get with the EU ameliorates the downsides.

I’m often reminded that it’s futile to hark on about what might have been. Still, imagine what might have been!

This could have been a Budget where our economy had been ticking higher at around near-2% GDP for years, trade was surging as Europe recovered, the national debt started falling, austerity was lessened, and the Government could turn its attention to dealing with some genuine problems.

Instead we have shot ourselves in the foot fighting largely imagined – or at least misidentified – ones, and the bleeding looks set to continue for years.

Budget 2017 roundup

The dramatic downgrade to our growth prospects aside, what else did the Budget have in it for you and me?

Bigger sites have covered the detail. Below I’ll link to those Budget tidbits with the most relevance to Monevator, and then give my super-quick personal verdict.

  • £44bn package to boost house building to 300,000 homes a year – I think Hammond picked the right hot button problem, and using existing channels to get the money into the market makes sense. But given the distraction of Brexit, it’s a nuanced attack on a bunch of intractable problems that I doubt they’ll be able to deliver to the level required to reach 300,000 homes. Building homes via a new state homebuilder may ultimately be required (with all the downsides that entails).
  • Stamp duty cut to zero for first-time buyers on the first £300,000 of homes costing up to £500,000 – Bad news for me; I’m a first-time buyer who has saved and invested his way to above the £500,000 cut-off point, and my imminent purchase will attract nearly £30,000 of stamp duty! (That gets me a two bedroom flat in a nice but not swanky part of London). Stamp duty is a hard tax to like, as it just clogs up transactions, so a cut is good. But Hammond’s targeted move will probably simply push up the price of first-time buyer properties, introduce new artificial boundaries around the £300K and £500K points, and it does nothing to get those higher up the chain moving.
  • Driver-less cars on the roads by 2021 – Seems ambitious, but I am all for it. I think you’ll probably need some exemption to be driving a vehicle in 20 years time.
  • Higher taxes on diesel cars and fuel duty freeze – After trumpeting his push towards self-driving cars and clean energy, Hammond flipped and went on to brag he was freezing the fuel duty escalator yet again. This has cumulatively cost the exchequer tens of billions in lost revenues, and is made dirty carbon-rich transport more affordable than it would have been, reducing the incentive to cutback or switch towards cleaner fuels. Past support for diesel cars looks like a mistake given what we now know about pollution, so I welcome that reversal.
  • VCT and EIS tweaks – I’d like to see the costs of VCTs come down somehow, perhaps through mergers that enabled more expense saving. As things stand it’s hard to recommend them to the average person. But I am increasingly chancing my arm with small EIS investments into start-ups, where the tax incentives are very real. Increasing the limits for both individuals and certain kinds of companies raising money will fly over 99.9% of most people’s radars. But if it gets more money into innovative new companies that would otherwise have been gummed up in State spending, that’s good.
  • National Living Wage rising from April 2018 by 4.4% to £7.83 – All for it. The lesson that minimum wages do not suppress job growth has been one of the least discussed economic discoveries of the past few years. I want to see the lower-paid earn more, and I think the best-paid can take standing still for a while to narrow the gap.
  • Winners and losers from the personal allowance rising to £11,850 and the 40% income tax threhold rising from £45,000 to £46,500 – While in nominal terms this wasn’t a new austerity Budget, the winners are definitely more higher earners than those relying on benefits. While I wouldn’t dispute some of the latter face real hardship, the boom in employment since the Conservatives went on the attack against the excess largesse of the welfare state does seem to support this recent direction of travel. We must make sure the truly vulnerable get the support they need, of course.

Update: Analysis from think tanks

The Institute for Fiscal Studies has now released a multi-part response to the Budget, and it underlines my gloom about the years of low growth ahead:

“[Forecasts] now suggest that GDP per capita will be 3.5% smaller in 2021 than forecast less than two years ago in March 2016. That’s a loss of £65 billion to the economy. Average earnings look like they will be nearly £1,400 a year lower than forecast back then, still below their 2008 level.

We are in danger of losing not just one but getting on for two decades of earnings growth.”

The Resolution Foundation focuses on the impact of the downgrade on the low paid:

“Productivity isn’t the only determinant of pay growth. But it is a key one. In the OBR’s model, there’s a direct feed-through from today’s grimmer picture to pay. And if typical wages are rising more slowly than previously forecast, then so to will the National Living Wage.

Putting those figures into pounds and pence, our analysis using today’s figures show that the pre-tax pay of a National Living Wage earner working full-time will be over £1,400 a year lower in 2020 than originally forecast when it was announced in 2015.”

What did you think about the Budget and the economy? Let us know – politely please – in the comments below!

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{ 61 comments… add one }
  • 51 Neverland November 24, 2017, 4:10 pm

    @Mike Raven

    *Only* GBP 800,000 for 800 square feet of heaven in South West London, where can I sign to get one??? Second thoughts, lets buy two!

  • 52 A Different Richard November 24, 2017, 4:28 pm

    Talking of buying two…


    My part of the world.

    Fancy something a little more traditional? Try:


    Hell, if you stretch your budget you COULD have both.

    You London folk really are living in a different world (and I don’t just mean about Brexit!)

    The search facility on that property website allows you to search by price. The highest band is “above £300k”.

    The trip home’s lovely too. 10 minutes on open roads across the Black Isle. No sniffing strangers’ armpits on the tube…

  • 53 The Rhino November 24, 2017, 5:01 pm

    And as for RITs two pence. I’ll pay attention when he eats his own dog food. I’d be bored out of my brains within 5 mins of going down that rabbit hole.

    To be fair though, that is assuming the foreign property purchase is accompanied by a hard brexit cliff edge style early retirement (is that what RIT advocates?)

  • 54 Mike Rawson November 24, 2017, 5:15 pm

    @ Neverland

    I like my new name.

    It is nice here, but I didn’t say I was a buyer at that price. I’ve been here a long time.


  • 55 UK Value Investor November 25, 2017, 9:27 am

    @The Rhino – Thanks for the correction. £800k not £500k for 2 bedrooms. Wowza.

    As for humble bragging technique of mentioning stamp duty rather than the price, no, the full sticker price of my 4-bed suburban London flat was indeed £40k in 1995. I had to save up a massive £2k deposit and the mortgage was about £300 per month.

    Oh happy days.

    And on retiring abroad as RIT may at some point do, it works for some people. My father in-law got squished in a motorbike crash and the insurance payout funded early retirement and a move to Spain (the warmer weather is kinder to his many metal joints). As far as I can tell he’s happy sitting around building short-wave radios and other electronic gadgets, or stripping off-roaders into their component parts (not sure why he does that, but he seems to enjoy it).

  • 56 The Rhino November 25, 2017, 10:13 am

    @UKVI – my humble brag jibe was directed at TI. I understood you paid 40k for the flat. Great bargain with benefit of hindsight.

    You’re absolutely right about the retirement thing. Everyone is different, no one size fits all. I watch with interest what RIT does next. I doubt TI will take his advice.

    I’d quite like to move somewhere laid back with a big shed so I could tinker with things. I can see the attraction. I too have just been squished in a nasty cycling accident. Maybe my new titanium exo skeleton will respond better to sunnier climates?

  • 57 Gadgetmind November 25, 2017, 11:10 am

    I was surprised to see no further attacks on DC pensions, particularly as the post-referendum sterling crash has seen me exceed LTA, and a performance bonus has seen me (unexpectedly!) hit full tapered annual allowance, which I’ve already exceeded. Quality problems maybe, but I certainly didn’t need another blast of tax.

    As for Brexit, yes it’s clearly knocked us into the slow lane, and HMG’s negotiators could walk into DFS and come out with a full price sofa, so I’m deeply pessimistic about the UK’s future.

  • 58 The Investor November 25, 2017, 11:12 am

    I mentioned my stamp duty (as a first time buyer) because we were discussing first time buyer stamp duty!

    Believe me, for someone of my persuasion the word ‘brag’ and the sentiment “I am buying a flat when prices are still near to all time highs relative to earnings and after sitting out the market* for tactical reasons for more than a decade” is about as far from a brag as I can imagine. 🙂

    *Reality slightly more complicated.

  • 59 Grumpy November 25, 2017, 11:17 am

    “I can’t see how Brexit can boost growth in the next decade.”

    With all due respect that’s why you are not chancellor, however saying that I don’t think the current one is worth keeping, he is just as negative

  • 60 The Investor November 25, 2017, 12:34 pm

    @grumpy — What, we are back to deferring to experts again? 🙂 Well in that case well over 90% of economists and the majority of business people have stated Brexit will be a negative. 🙂

    I say “within a decade” because it will take at least that long for any alleged benefits from new trade deals etc to outweigh up front negatives, IMHO.

    Of course a chancellor could boost growth tomorrow by increasing state spending or cutting taxes or some other things. But that is not *because of Brexit*. They could have done that anyway.

  • 61 The Rhino November 25, 2017, 1:00 pm

    Haha. Fair enough. But then again that is the very essence of the quality humble brag. They must be slipped in covertly using as much subterfuge and distraction as the authors ingenuity can muster.

    TEA brought another one to my attention that I’m on the lookout for these days. Virtue signalling. Fascinating stuff!

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