A new report today has suggested that the Chancellor faces fast public finance deterioration in his Autumn Statement.
However, a fiscal ‘reset’ would allow him to increase investment spending and support for ‘just managing families’.
The report, Pressing the reset button, comes with the Autumn Statement now just four weeks away. The Foundation says that the recent political upheaval means that the Chancellor’s announcement will be more like a post-election emergency Budget, setting the government’s economic direction of travel over the remainder of the parliament.
Pressing the reset button analyses the impact that the change in economic and fiscal forecasts following the EU referendum vote is likely to have on the options facing the new Chancellor.
It finds that applying the average change in forecasts to the latest OBR projection from March 2016 implies £84bn additional borrowing across the five year forecast period to 2020-21 – with the annual deterioration reaching £23bn in 2019-20.
This would turn the £10bn surplus pencilled in for 2019-20 into a £13bn deficit – breaking the previous Chancellor’s rule of closing the overall deficit by the end of the parliament. Debt as a share of GDP would also rise in 2017-18 – breaking another fiscal rule by £10bn in that year.
The Foundation says the Chancellor would therefore have to announce very significant fresh spending cuts or tax rises if he was to meet the fiscal rules he has inherited, and do so in the face of economic headwinds. It is therefore welcome that he has already announced a fiscal ‘reset’ in response to a changing economic climate.
The report considers two possible ‘resets’ plans – softening the deficit target by switching to a current budget balance in 2019-20, or delaying the deficit target by pushing the plan for an overall surplus back later than 2019-20.
Should the Chancellor press the fiscal reset button, the report also highlights a shopping list that the Chancellor is under pressure within government to prioritise in his Autumn Statement, including:
• Higher public investment as part of a wider industrial strategy
• Helping ‘just managing families’ by reversing planned cuts to Universal Credit
• Delivering the Conservative Party 2015 manifesto commitments on income tax cuts
The report shows that delaying the target by a year – securing an overall surplus in 2020-21 – would mean announcing £9bn of extra spending cuts or tax rises, or more if he wanted to make progress on his shopping list. Without such further tightening an overall surplus would not be achieved until 2023-24, much too late to be a credible fiscal target. The Foundation says that it is therefore unlikely that the Chancellor will target a delayed overall budget surplus – though he may still say that one is desirable at some point.
However, the Foundation notes that choosing instead to soften the deficit target would offer fiscal leeway of up to £17bn a year in 2019-20. This would allow the Chancellor to reverse the planned cuts to work allowances in Universal Credit, deliver the tax cuts from the Conservative manifesto and still secure a modest current budget surplus in 2019-20. In exchange for higher borrowing he could also increase investment from its proposed level of 1.9 per cent of GDP in 2020-21 to 2.2 per cent. This would bring it into line with the average level of public investment prevailing in the late-1970s and early-1980s, before it was lowered significantly.
However, the trade-off for switching to a current budget balance rule by the end of the parliament is a much higher deficit, with borrowing still standing at £30bn in 2019-20. The cumulative effects of a weaker economic outlook and a softer deficit target, which would allow the Chancellor to pursue all three items on his shopping list, could be £145bn of extra borrowing between now and 2020-21.
Matt Whittaker, Chief Economist at the Resolution Foundation, said:
“Despite the long-term impact of Brexit remaining very uncertain at this stage, there is a strong consensus among economists that post-referendum uncertainty will lead to deterioration in the public finances, which were coming in below expectation even before the referendum.
“We won’t know the OBR’s verdict until 23 November but our analysis shows that the Chancellor may face a new £84bn borrowing black hole and the prospect of breaking the fiscal rules inherited from his predecessor. Rather than announcing very significant further tax rises or spending cuts in the face of renewed economic headwinds, the Chancellor is right therefore to press the fiscal reset button and set a new economic course for the remainder of the parliament.
“The good news for Philip Hammond is that by softening his fiscal target he has significant political and economic room for manoeuvre. The leeway created by a new set of fiscal rules could afford the Chancellor the opportunity to make his mark on two key themes of the new government – boosting investment and helping ‘just managing families’ by reversing the social security cuts that are set to squeeze their incomes.
“But the trade-off for this approach is significantly higher borrowing in the coming years. The Chancellor will need to decide if that is a price he is prepared to pay for adjusting to new economic times and setting out a direction for the new government.”
A Good Look At How Homes Will Become More Energy Efficient Soon
Everyone always talks about ways they can save energy at home, but the tactics are old school. They’re only tweaking the way they do things at the moment. Sealing holes in your home isn’t exactly the next scientific breakthrough we’ve been waiting for.
There is some good news because technology is progressing quickly. Some tactics might not be brand new, but they’re becoming more popular. Here are a few things you should expect to see in homes all around the country within a few years.
1. The Rise Of Smart Windows
When you look at a window right now it’s just a pane of glass. In the future they’ll be controlled by microprocessors and sensors. They’ll change depending on the specific weather conditions directly outside.
If the sun disappears the shade will automatically adjust to let in more light. The exact opposite will happen when it’s sunny. These energy efficient windows will save everyone a huge amount of money.
2. A Better Way To Cool Roofs
If you wanted to cool a roof down today you would coat it with a material full of specialized pigments. This would allow roofs to deflect the sun and they’d absorb less heat in the process too.
Soon we’ll see the same thing being done, but it will be four times more effective. Roofs will never get too hot again. Anyone with a large roof is going to see a sharp decrease in their energy bills.
3. Low-E Windows Taking Over
It’s a mystery why these aren’t already extremely popular, but things are starting to change. Read low-E window replacement reviews and you’ll see everyone loves them because they’re extremely effective.
They’ll keep heat outside in summer or inside in winter. People don’t even have to buy new windows to enjoy the technology. All they’ll need is a low-E film to place over their current ones.
4. Magnets Will Cool Fridges
Refrigerators haven’t changed much in a very long time. They’re still using a vapor compression process that wastes energy while harming the environment. It won’t be long until they’ll be cooled using magnets instead.
The magnetocaloric effect is going to revolutionize cold food storage. The fluid these fridges are going to use will be water-based, which means the environment can rest easy and energy bills will drop.
5. Improving Our Current LEDs
Everyone who spent a lot of money on energy must have been very happy when LEDs became mainstream. Incandescent light bulbs belong in museums today because the new tech cut costs by up to 85 percent.
That doesn’t mean someone isn’t always trying to improve on an already great invention. The amount of lumens LEDs produce per watt isn’t great, but we’ve already found a way to increase it by 25 percent.
Maybe Homes Will Look Different Too
Do you think we’ll come up with new styles of homes that will take off? Surely it’s not out of the question. Everything inside homes seems to be changing for the better with each passing year. It’s going to continue doing so thanks to amazing inventors.
ShutterStock – Stock photo ID: 613912244
IEMA Urge Government’s Industrial Strategy Skills Overhaul To Adopt A “Long View Approach”
IEMA, in response to the launch of the Government’s Industrial Strategy Green Paper, have welcomed the focus on technical skills and education to boost “competence and capability” of tomorrow’s workforce.
Policy experts at the world’s leading professional association of Environment and Sustainability professionals has today welcomed Prime Minister Teresa May’s confirmation that an overhaul of technical education and skills will form a central part of the Plan for Britain – but warns the strategy must be one for the long term.
Martin Baxter, Chief Policy Advisor at IEMA said this morning that the approach and predicted investment in building a stronger technical skills portfolio to boost the UK’s productivity and economic resilience is positive, and presents an opportunity to drive the UK’s skills profile and commitment to sustainability outside of the EU.
Commenting on the launch of the Government’s Industrial Strategy Green Paper, Baxter said today:
“Government must use the Industrial Strategy as an opportunity to accelerate the UK’s transition to a low-carbon, resource efficient economy – one that is flexible and agile and which gives a progressive outlook for the UK’s future outside the EU.
We welcome the focus on skills and education, as it is vital that tomorrow’s workforce has the competence and capability to innovate and compete globally in high-value manufacturing and leading technology.
There is a real opportunity with the Industrial Strategy, and forthcoming 25 year Environment Plan and Carbon Emissions Reduction Plan, to set long-term economic and environmental outcomes which set the conditions to unlock investment, enhance natural capital and provide employment and export opportunities for UK business.
We will ensure that the Environment and Sustainability profession makes a positive contribution in responding to the Green Paper.”