Category: Economy

HAMMOND’S CHALLENGING DEBUT.

 

Turbulent times require grey politicians and we have two at the top of government. Theresa May has turned off the daily flow of government initiatives to keep the press happy. A good thing too, the constant announcements from the Blair, Brown and Cameron regimes rarely amounted to much and were initiated in the vain hope of distracting hacks from the real stories.

Her next door neighbour and Chancellor, Philip Hammond makes John Major look exciting. But that’s not a problem for me. There is so much uncertainty in the world that we need a cautious person in charge of the money and that approach is likely to inform next week’s Autumn Statement.

Business in the North will want clear indications around the new Chancellor’s approach to the uncertainties of Brexit. Leavers are crowing at the moment because the economy hasn’t apparently suffered from initial Brexit damage. Let’s wait and see. If Hammond is wise he’ll be preparing the British economy for slower growth and higher inflation as the folly of us leaving the EU becomes more and more apparent. He will be hampered in shaping our economic future by the total disarray that is being revealed within government about what future relationship we actually want with the EU.

On taking office Hammond moved away from his predecessor’s deficit reduction targets. Price Waterhouse Cooper predict a gap of £67bn this year, a huge figure but will it matter to the Chancellor? We seem to be in a time when politicians prefer to forget the legacy they are leaving to future generations. That certainly seems to be the case with the incoming Trump administration in America where he breezily talks about a trillion dollar infrastructure programme.

While the Donald deals with his crumbling bridges, Hammond has a number of areas crying out for cash should he wish to spend it. Adult social care is at the top of the list, followed by the NHS and then councils.

Anyone with eyes to see can observe the plight of Town Halls. Libraries and bus services are being closed in a desperate attempt to support the growing needs of the elderly.

Then there is the housing shortage which is so badly affecting the young. I say young but in many cases married couples in their early thirties are still not able to afford a home of their own. The levels of stamp duty are being identified as a problem that the Chancellor might wish to address.

Then there is the Northern Powerhouse and Transport for the North. The latter is becoming an increasingly important organisation headed up by the former CBI boss John Cridland. He gave an impressive presentation to the North West Business Leadership Team recently about his vision for improved connectivity involving east-west rail and road links and simplified ticketing. The government revealed new route plans for HS2 this week. That project is seventeen years away. Next week the Chancellor needs to support some shorter term wins along the lines of the Cridland plan. It will also be interesting if Philip Hammond mentions the Northern Powerhouse. It was frequently mentioned in Osborne budgets. Despite denials there remains an impression that the May government has cooled on the idea or pivoted to the Midlands Engine.

Wednesday will be an important one for Philip Hammond and could define his whole Chancellorship.

 

DON’T ROCK THE REFERENDUM BOAT CHANCELLOR!

 

PETROL TAX IS TEMPTING TARGET FOR OSBORNE.

George Osborne is in danger of being caught in an ambush of his own making when he presents his budget next week.

He needs to keep voters sweet ahead of the EU referendum but recently announced that the optimistic note he struck at the time of the autumn statement has now gone flat. There was always a danger that mid term unpopularity might lead people to vote against the government for reasons unrelated to Europe. At the moment the Conservatives hold a healthy lead over Labour, but an unpopular budget with new cuts and tax rises could change that before June.

The Chancellor was too bullish in the autumn and now that the economic headwinds are beginning to blow, he is thrashing around for answers to keep his pledge of a budget surplus by 2020 intact. The suggestion of a major reform of pensions was a spectacular example of this. The idea was floated to remove tax relief on pension contributions rather than taxing withdrawals later in life. This would have been a complete reversal of the current position but would have given Mr Osborne more tax revenue now. The plan met severe criticism, not least because a future Chancellor might be tempted to tax withdrawals as well.

That pledge of a budget balance by 2020 is crucial if George Osborne is going to make a bid for the premiership, but it certainly restricts his room for manoeuvre as uncertainty persists on the international front. With growth forecasts cut and average earnings rising more slowly, tax revenues are not what he expected as recently as November.

Reaching for more cuts in public services is going to prove very difficult. The well reported difficulties faced by councils like Lancashire clearly show there is no low hanging fruit on the public spending tree. Indeed the Chancellor will need a long neck to munch much more. So let’s nickname any more economies in this area, the giraffe cuts!

It is always difficult to predict what Chancellors will do, but I would be surprised if petrol duty remains frozen as it has been since 2011. With the drop in forecourt prices to around a pound a litre, this would be a relatively pain free area to raise tax. He ought to do something about taxing the amount of sugar we consume but there seems to be a reluctance to do so.

With virtually zero interest rates the climate remains favourable for investment and consumer growth remains strong. However the latter familiar development in the UK economy may be storing up trouble in the future. If only the manufacturing figures were as healthy.

Osborne will be entitled to say that his campaign to make multinationals pay their UK taxes is beginning to work. This is an essential development as people grow weary of the austerity agenda.

Wednesday’s budget will be both a temporary distraction from debate on the EU referendum, whilst also potentially affecting its outcome. Osborne has been in post nearly six years now. He will need all his political skills to get through this Budget.

 

NORTHERN POWERHOUSE AND PRODUCTIVITY.

 

For years business has moaned about our poor productivity figures in the North. So what are we actually going to do about it?

The North West Business Leadership Team(NWBLT) have come up with some practical suggestions but also some stark analysis of the scale of the problem. People in this country work some of the longest hours in Europe but our output is below the average of the G7. Although we have recovered from the 2008-12 recession with growth reasonably healthy and unemployment and inflation low; productivity has remained flat. The NWBLT warn that if this remains the case as the Living Wage comes in, unemployment will be on the way up again.

Manchester is seen as the heart of the Northern Powerhouse yet it still has big problems with its in-work productivity which is £8.2 bn below the UK national average, the greatest shortfall of any of the core cities. As NWBLT Chief Executive Geoffrey Piper recently pointed out only Cheshire and Warrington are above the national average in the North. Manchester’s problem is due to poor skills levels of course, but also shortcomings in transport. Manchester is getting a reputation for chronic congestion on the roads and trains. Recent announcements may address the latter but regarding the endless traffic jams, do you hear murmurings about another attempt to introduce congestion charging?

The NWBLT feel that the vision of a Northern Powerhouse as a truly competitive global economy will remain a distant dream until productivity is improved. So they have come up with some sensible, but quite tough policies. One is to link early introduction of the Living Wage directly to enhanced training for relevant qualifications. Another is to channel government research and development money into Performance Bonds and remove it from under=productive assets. The NWBLT want a Regional Productivity Index to measure performance every quarter by Local Enterprise Partnership area; and they want support for the national Productivity Leadership initiatives on process efficiency, digitalisation and working practices.

Juergen Maier, the Chief Executive of Siemens UK is chair of the NWBLT and wants urgent implementation of his report because he sees caution returning among business leaders. This is due to a number of factors including volatility in the Chinese economy, Middle East conflict and uncertainty over the E.U referendum. Maier believes there are other domestic factors that are unsettling business including the implementation of the apprenticeship levy on larger firms, cuts in industry support and the need for a stronger narrative about the aims of the northern Powerhouse beyond transport.

The Chancellor clearly shares Maier’s analysis of the economy. In November at the time of the Comprehensive Spending Review, George Osborne was bullishly confident that he’d repaired the roof while the sun was shining. Perhaps it was the floods or a fear that he had induced complacency, that has lead to his current reminders that the austerity programme is far from over.

Whatever the prospects for the Northern economy in 2016, they will be improved in the long term if everyone if everyone implements the NWBLT report” Unlocking our Potential: Solving the productivity puzzle.”

 

LABOUR OLDHAM WARNING AS OSBORNE MARCHES ON

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OLDHAM WARNING FOR LABOUR.

A Labour contact of mine in the Oldham West by election says on the doorstep traditional Labour voters are raising Corbyn’s leadership all the time. This could be significant as “Westminster bubble” issues don’t always resonate with voters.

The feedback from this northern seat is that Corbyn and his close advisers are all perceived to be from a London clique who haven’t a clue about the North. This impression will be compounded by Corbyn’s decision to cancel his planned Friday visit to the by election as he tries to sort out serious divisions over his party’s policy on bombing Syria.

All this means that we would be unwise to rule out UKIP doing very well next Thursday night in Oldham West and Royton.

OSBORNE FOR PRIME MINISTER?

 

George Osborne’s shameless U turn on tax credits and police cuts will be long forgotten if his gamble in believing in a continuing world of low inflation and interest rates pays off. In his six years as Chancellor, he has shown himself generally to have a pragmatic and politically sensitive approach. Made a mistake over pasties or tax credits? Make a change and move on. His upbeat approach at all three budget statements this year raises the morale of backbench Tories who think he’s a winner. They also like the ideology which runs underneath the pragmatism. Osborne is determined to create a smaller state. By 2020 it will have shrunk from 50% to 35% of gross Domestic Product.

This is most clearly seen in housing policy. The private sector is to be incentivised to build 400,000 homes with a strong emphasis on making them available to buy not rent. Along with the right to buy for Housing Association tenants, the thrust of government policy is clearly away from social housing to home ownership. First time buyers with incomes of up to £80,000 in the North will be able to benefit from the subsidies offered. The policy will not help the poor who are most in need of housing.

On education George Osborne explicitly said the days of local councils running schools would be a thing of the past. 500 new free schools are to be built.

So ideology to please the Tory backbenches, pragmatism to please the voters, could this be a combination that allows George Osborne to see of Theresa May or Boris Johnson in the leadership election? At the moment he has to be favourite but what if things go wrong.

THE GAMBLE.

The Treasury are spinning that this isn’t the end of austerity. Well a strategic decision has been taken to take advantage of the more optimistic outlook offered by the Office for Budget Responsibility to ease the cuts in the early years of the parliament and breach the welfare cap. There is a heavy reliance on continued low inflation rates and growth of around 2.5%. If “events” happen like a further downturn in the Chinese economy, Osborne’s gamble could unravel just when he’s seeking to become Prime Minister. In that respect it is strange that he has decided to defer more painful cuts till nearer the election rather than getting them over now.

WHAT IT MEANS FOR THE NORTH.

Sir Richard Leese, the leader of Manchester City Council had challenged the Chancellor to put the flesh on the bones of the Northern Powerhouse particularly in relation to transport. Well there is £200m for transport including £150m for an “oyster” card system. This is brilliant news. Anyone who uses London Transport knows that card makes the use of public transport so easy. The M6 between junctions 16-19 is to upgraded. The motorway which enters the north through the important gateway of Cheshire and Warrington is often overlooked when connectivity is discussed. There are major investments in science and nuclear power. New Enterprise Zones are being created in Leeds, York, Greater Manchester Life Science Park, Cheshire Science Corridor and Hillhouse Chemical on the Fylde.

LABOUR VICTORIES.

Labour can claim to have forced the government to retreat over tax credits and police cuts but they still shoot themselves in the foot.

Liam Byrne’s 2010 message left on a Treasury desk saying there was no money left, Ed Miliband’s headstone and Shadow Chancellor John MacDonald’s brandishing of Chairman Mao’s Little Red Book are a woeful series of unnecessary public relations gaffs.

The tragedy is that the issue that MacDonald was trying to raise, the worrying amount of our infrastructure owned by the Chinese is a valid one.