UK Budget: Hammond puts brave face on dire growth forecasts
UK Chancellor Philip Hammond says the Budget will create a future of opportunities. But official economic growth forecasts were cut sharply. Economics correspondent Gemma Tetlow and personal finance editor Claer Barrett explain all to Daniel Garrahan.
Produced by Daniel Garrahan, Edited by James Sandy
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With effect from today, for all first-time buyer purchases up to 300,000 pounds, I am abolishing stamp duty altogether.
UK Chancellor Philip Hammond has just delivered a budget to the House of Commons that he says will help create a future full of new opportunities. But official forecast showed weaker growth, lower rises in productivity, and worse public finances in the medium term. Joining me now to talk about it is our economics reporter Gemma Tetlow, and our personal finance editor Claer Barrett.
Gemma, if I could start with you. A future full of opportunities. Is the chancellor putting a brave face on what are some pretty dire growth forecasts?
Mr. Hammond's rhetoric tried to be quite upbeat, but the new forecast he's got from the Office of Budget Responsibility were really pretty dire. Less than two years ago, we thought that the UK economy could grow in the longer term by 2 and 1/2% a year. The new forecasts say that that's only 1 and 1/2% a year. And that creates really big problems in terms of bringing down government borrowing.
Philip Hammond's new forecasts show borrowing still being at 25 billion pounds a year by 2022. That makes his ambition to eliminate borrowing entirely by the middle of the decade really quite challenging.
The long-term growth picture doesn't look great, does it? And that won't change unless productivity picks up. But the chancellor announced some pretty ambitious plans to try and turn that around, didn't he? Some pretty big spending plans.
This government have announced-- and including some additional money today for infrastructure projects, so new roads, new rail. We shouldn't be cynical about the size of those. It really is bringing public investment up to a level that we haven't seen in quite a long time in the UK. However, despite that, the OBR is still forecasting much, much slower productivity growth than we've seen in the past.
Now Claer, as always, people want to know how the budget affects their own personal finances. Who are the big winners and losers, would you say?
Well, I think the big winners, really, are the wealthy-- good for FT readers, perhaps-- because of what the chancellor didn't do. Now, he could have started tinkering around with pensions tax relief, which would have been one of the ways he could have raised a lot of money through tax. But he was scared off, I think, because the majority is so fragile within the parliament. If he did anything that could have prompted negative headlines from the Daily Mail, as we saw a couple of years ago, it could have been enough to upset the apple cart. So I think big sighs of relief on that.
I mean, the other obvious winners are people, young people, first-time buyers who are buying a home. They might not be winners for long, though, of course. Although stamp duty, he's eradicated it on houses up to 300,000 pounds. Don't forget that you wouldn't pay any stamps duty at all unless the house was worth more than 125,000. And if you're buying it in an expensive area like London, you can still get that relief up to 300,000, so long as the house you're buying is worth less than half a million.
But that's not just going to help people who are buying a home. It's also going to push prices up in the long term because more people will be able to get to their savings target more quickly. So if you're on the verge of completion now, and there are a couple of people in the office downstairs who are, they're all rooting and cheering. Excellent, another one here. But anybody who is maybe completing or looking to buy a house in the relative near-term period may find that prices rise enough to compensate for that cut.
But then it could also be helping the people who are selling the houses if it causes the market to pick up again. Because there have been some moribund pockets of property market activity in the southeast.
Now, just briefly, you mentioned younger voters. In the last election, latest anti-austerity message seemed to resonate with younger voters. I mean, beyond the housing thing, do you think the chancellor has done enough to try and speak to the younger generation?
Well, we were really expecting him to do more. I mean, obviously he's done more and helped to buy. But you know, like the stamp duty thing, that's helping people who are already 9/10 of the way there financially to owning their own home. So a bit disingenuous, maybe.
They can get a rail card now up until the age of 30. You know, fantastic. I'm sure that won't be snubbed by young people. But compared to what we were led to expect, a budget for millennials, that really hasn't happened.
And I also think that with young people we could have seen something on the lifetime ISA. He could have upped the limit on that, done something to encourage young people to save more. Whether it's for the proverbial dream home, or into a pension. And we didn't see that. So I think overall young people will be fairly nonplussed.
Just a final question to you both very briefly. Clearly, the chancellor was under pressure from all sides going into this budget with the growth forecast, even some of his own and his own party turning against him. Given all of that, how would you sum up his message today briefly, to you both?
I think he tried to send the message that he's working towards having the best, brightest future outside the EU. I think in reality he was very constrained by the public finance numbers. And he really wasn't able to do a huge amount today.
And Claer, would you echo that?
I would say fiddly Phil fiddles around, trying to please everybody. Ends up pleasing nobody.
Gemma, Claer, thanks very much.