Autumn Statement: What can we expect?

Noreena Hertz

Former Economics Editor

Chancellor Philip Hammond will deliver the Autumn Statement on Wednesday.

  • What do we know so far?

Pre-empting the Autumn Statement is an exercise in playing detective, in clue-gathering and piecing together a narrative.

Any prediction is bound to be incomplete – but here are some thoughts at least on what I believe the broad brushstrokes will be and why.

  • The context

All indicators are that (because of Brexit) growth is going to slow down over the next few years.

In my conversations with the Chancellor he’s been clear that he believes tough times lie ahead, which means that unless Mr Hammond is willing to rack up much more debt (highly unlikely given his reputation as a fiscal hawk and that he’s referred to the debt we already have as “eye watering”), he’s going to be severely constrained when it comes to what he can spend.

Remember too that he’s locked in to a series of Tory manifesto commitments that further curtail his ability to spend.

Just because the Chancellor has jettisoned Osborne’s fiscal surplus target – doesn’t mean he is going on a spending spree.

It is important also to consider is that because the economy has not as yet taken a significant hit - retail sales have been resilient, inflation hasn’t yet filtered through to the high street - Mr Hammond is not under huge pressure to put in place measures to get people spending right now.

My sense is that Mr Hammond does not feel a need to commit to a significant stimulus right now. But he is aware that come next year, he may well have to do more.

The Chancellor is however under some pressure already to get businesses investing - we’ve seen a slowdown in business investment (given the uncertainty) yet many companies are sitting on significant cash reserves.

So whilst we are unlikely to see a cut in VAT tomorrow, we may see measures aimed encouraging businesses to deploy their cash reserves and invest.

  • Hammond’s two narratives

More generally, what Mr Hammond is under pressure to do tomorrow is to tell a compelling story to the outside world (and to business) that in the post-Brexit world the UK is not only "open for business", but is a dynamic country with great future growth prospects. (This is essential for him to communicate if he doesn’t want the pound to fall even more).

He also has to tell a story at home that reinforces the PM’s message that she has heard the rage of those who globalisation has left behind, and intends to address their needs and concerns.

  • So what does this mean in practice?

Investment in broadband of up to £1 billion has already been announced.

In terms of the UK future growth story, we already know that some traditional “hard” infrastructure investments have been announced such as the £1.3bn on roads. But it’s not more of this ilk I’m looking out for tomorrow.

Instead, keep an eye out for less traditional investments – what we might call “soft infrastructure” investments.

Ones that explicitly support innovation, and will help us to compete in the 21st Century: investment in science, in skills, incentives for businesses to innovate, for example.

Investment in broadband of up to £1 billion has already been announced.

As has an extra £2 billion a year by the end of this Parliament in Research and Development.

The Chancellor is very keen to establish a clear narrative that we are an innovative nation that is future facing and that he is actively investing in our future.

He’s got limited spending powers and will be keen to convey that he is investing strategically in our future.

Mr Hammond's domestic facing message will want to stress that he is providing something tangible to those who have been left behind in recent times. The PM has promised this and all eyes will be on the Chancellor to deliver.

We’ve been hearing a lot about JAMs (the six million families who are at at the bottom end of income distribution – in work but just managing).

The most obvious measures to help them would be straight forward reversals of those of Osborne’s policies such as the work allowance cuts that directly hurt them.

But such clear cut reversals are unlikely.

Instead expect some measures that seek to mitigate this group’s economic pain.

We may see the reduction of what’s known as “tapering”, something to mitigate this groups’ housing costs (distinct from announcements on house-building we’ve already seen) etc. etc.

Some measures that have been mooted such as the freezing of fuel duty, the cutting of air passenger duty, something on childcare may be presented as JAM-facing, if they are indeed announced.

But it's debatable as to how significant an effect such policies would have on this constituency specifically.

Also expect something that speaks to regional economic differences in tomorrow's Autumn Statement.

Perhaps geographically targeted infrastructure spending ("hard" or "soft") or skills development in particular locales. "Place" is one of the PM's thrusts right now, so I would expect it to figure in some form.

As ever with budgets the devil will of course be in the detail. Rest assured I'll be looking forensically at what is announced.