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!

What caught my eye this week.

Now we know that Russian bots were spewing nonsense about Brexit around the time of the EU Referendum, those harrowing days afterwards make a bit more sense.

Okay, so the level of involvement discovered so far seems modest. But wouldn’t it be nicer to believe that one reason most Leave voters found it so hard to articulate their reasoning was because they were native Russian speakers living in Volgograd?

Land of hope and folly

It’s no secret I think the decision to Leave was a huge mistake – especially weighed against the reasons many gave for voting that way.

Returning sole legislative authority to Parliament and reducing immigration were the only logical reasons to vote Leave. Everything else we still hear cited – inequality, the London-centric economy, globalization, the demise of ship building and mining, the bemoaning that there’s too many brown people on the High Street – won’t be solved by Brexit.

Yes, this is probably sour grapes on my part. Looking at the marvel that is the vaunted UK Parliament in action since the Referendum is almost enough to make me wish I’d voted Leave too.

How satisfying it must be to see our unshackled political leaders rally around at this time of great national need! To watch Britain bestride the European negotiations with Churchillian authority! To smirk at the perfidious and weak EU caving as predicted within mere days to our every demand!

Well no, none of that has happened. But we have had a Parliamentary sex scandal – and a nostalgic Carry On Cocking Up film is surely in the works for national release on Brexit Day.

A positive spin on Brexit

Enough of my cynicism. Food may lie rotting in the fields because immigrants are going home, banks may already be leasing office space in Frankfurt, and as a nation we may be clutching a red box containing £100 and a Tory intern’s photocopied mock-up of the new Blue British passport yet still desperately hoping the EU says ‘Deal’ – but not everyone is so gloomy.

Neil Woodford’s fund firm asked Capital Economics to produce a huge and hugely pro-Brexit piece of research entitled: Where Are We Now? and it’s a fairy tale for Brexiteers. A long one, too. It starts as an infographic but you can dig into a ton of sector-by-sector research.

I haven’t read every last page, but from what I’ve seen there isn’t a negative number inside. Except for a potential fall in net migration, of course.

To be fair Capital Economics is mostly looking at things from a ten-year view. As I’ve said before, I agree that on that sort of timescale the UK will appear to be doing okay. The economy will probably be smaller than it might have been – because free trade works – but there will be plenty of other things to blame. Both sides will probably be able to argue they were right.

But both sides won’t have been right.

Right now both sides were wrong. Remainers were wrong that the economy would crash – it hasn’t. Leavers were wrong that leaving would be a doddle – it’s a nightmare.

I hope Capital Economics has split the difference because the scenario it paints as its middle-case outcome is one I think most of us would bite the hand off a banker for right now.

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What caught my eye this week.

When former Chancellor George Osborne announced he was raising stamp duty and reducing tax relief on mortgage interest for landlords, there was some scoffing.

“We’ll just raise rents!” the less sensitive cried. “Generation Rent can pay our taxes!” 

Well it turns out that riding one of the greatest asset price booms the UK has ever known doesn’t make you an economic wizard. Rents are falling across much of the UK. Now there are signs some landlords are selling up.

A graph in today’s Financial Times [search result] shows that:

“… growth in outstanding buy-to-let mortgages is failing to keep pace with new mortgages being granted, in a reversal of the broad relationship between the two over the past decade.

This strongly suggests some buy-to-let mortgages are being redeemed as investors sell rental properties.”

Here’s the graph:

Source: FT/Savills

I can add my own anecdotal observations to what this graph seems to be suggesting. One of the several reasons why articles on Monevator have been a bit thin on the ground recently is – wait for it old-timers – I’ve been looking to buy a property!

(What’s that? Oh yes, I agree. If there was ever a sign the bubble is about to burst, the last bear in town turning is surely it. Expect a long post on why I’m embarking on such madness in due course.)

I can confirm landlords are thin on the ground right now. One agent told me that in the area of London where I’m looking, 50% of sales used to go to landlords! Now they’re lesser spotted.

This is good news for first-time buyers, who have struggled for a decade to cope with the landlords’ trifecta of interest-only mortgages, tax relief, and deeper cash reserves.

I’m not someone who thinks landlords are evil (far from it – and mine have all been great) nor that there is no case for tax relief, say.

But I do think owner-occupiers should come first on our property-starved island.

On balance then, I am all for the changes to the attractiveness of buy-to-let, and the impact they seem to be having. Prices will probably stall or fall as the effect of higher taxes kick-in, and the economics of land-lording will be reset at a lower level.

Property has been a great windfall for the forty-plus demographic, but I suspect it’s time to look for new opportunities.

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