Philip Hammond seems to have been captured by his Treasury civil servants. These are essentially academic types without much understanding of the real world. This isn’t entirely a bad thing, because they are serious about keeping the country solvent and inflation down.

 

But they tend not to understand the damage to the economy from higher taxes – hence the hit to the property market from last year’s ill advised rises in stamp duty, which had the precise effects Cebr predicted. Nor that government schemes rarely have the benefits predicted.

 

The good news in this Budget is that the Chancellor has been cautious and has used most of his unexpected windfall from faster growth to bring down the deficit faster than he had originally intended. And he has used some of the spare cash to look after pressure points like social care and business rates. These are sensible moves.

 

But the bad news is that he has failed to anticipate serious problems that are emerging and deal with them before they come to a head.

 

First, the fastest growing and by far the most important sector in the economy (already 2nd largest), that mix of creative and tech that I named the Flat White Economy, will be put at risk if Brexit reduces the supply of skills. The single most important economic priority for the UK is to increase the supply of digital skills. The recent Science and Technology Select Committee report claims 23% of the UK’s adults lack digital skills and pointed to the need to improve digital education. The cumulative £820 million for implementing the Sainsbury reforms to technical education may help here but the expenditure will be dispersed amongst hairdressers and the like.

 

Second, welfare and inequality. As the fourth industrial revolution cuts a swathe through many of the jobs like taxi driving that have kept the UK at full employment in recent years, welfare needs to be reformed to become less of a disincentive to low paid work. But the budget if anything made this worse. The rise in the minimum wage to £7.50 will start to destroy jobs.

 

Third, housing and property. The system of taxing property in the UK has become a real mess, causing an increasing misallocation of resources, while the yield disappoints. Older people get stuck in properties that are too large because of stamp duty while those who want to buy to let are discouraged from doing so. This holds back housing investment. There is an urgent need to reform.

 

Fourth, the Treasury quite rightly is worried about the erosion of the tax base. In a digital world, the revenue loss from excessive tax rates is significant. The US is about to cut taxes sharply. Meanwhile many argue that UK public services are underfunded. A hard headed drive to reduce the cost of the public sector is needed to square the circle between the likely need for lower taxes and better services.

 

Fifth, people who work for themselves and who set up and run companies should be encouraged. Instead the Chancellor has singled this group out for a £1,425m tax hike on the misleading ground that they pay less tax, ignoring the risks they take. Disdain to this group is a typical Treasury attitude. Many of the self employed are IT consultants and are especially critical to the economy.

 

Finally a mea culpa. We criticised the OBR’s bad forecasting performance last Autumn. But it looks as though their view of 2017 will prove more accurate than ours. It is rare that their forecasts are better than ours but when they are we are prepared to grit our teeth and admit it!

 

Douglas McWilliams,

 

Cebr President