To cope with the risks of Brexit, the uk government released its fiscal prudence. The chancellor of the Exchequer (Finance minister) of the government of Theresa May, Philip Hammond, has presented this Wednesday, November 23, the broad outlines of the new budget policy in britain over the course of his “declaration of the fall” (” Autumn Statement “) before the House of Commons.
Despite the good resistance of the current british economy, the growth is nevertheless expected to weaken in the medium term (over the next five years, a decline in cumulative growth of 2.4 points compared to the previous forecast. The growth is expected to subside next year, including 1.4 % (versus 2.2 % previously estimated) and then to remain below 2 % to 1.7% in 2018, before returning to 2.1 %, its expected level in 2016, in 2019. These projections of course remain subject to the greatest caution, the contours accurate to the Brexit is yet to be set.
A fiscal consolidation curbed
in view of this weaker growth and uncertainty reigning, the government has decided to abandon the previous budget plan put in place by the predecessor, Philip Hammond, George Osborne, which provided for a return to balanced public accounts in 2020. “fiscal policy credible is essential, but we also need flexibility to support the business, ” explained the chancellor of the Exchequer. In all, over 5 years, the government plans to spend 118 billion pounds more than expected, or an average of 23.6 billion pounds per year. The equivalent, therefore, of 1.2 % of GDP in 2015 every year.
The balance of public accounts is, therefore, now anticipated that during the next legislature, which will begin in 2020, but there is not as much fiscal loosening, only a slowdown of the consolidation. The public deficit will rise from 4% of GDP on the fiscal year 2015/2016 to 3.5 % of GDP in 2016/2017. By 2021/2022, the government expects a deficit of 0.7% of GDP. The government should allow public debt to rise to 84.2% of GDP currently with 90.2% of GDP in 2017/2018 before the show down in the last two years of the legislature.
Rebalance the economic model
Theresa May had, from the first weeks that followed his appointment, prepared for this change, of course, considering that the government should now invest in the uk economy prepare for the shock of Brexit. The main risk linked to the output of the EU in the finance and real estate, two sectors that have drawn the uk growth, but which are heavily dependent on foreign capital and therefore access to the european single market. These two sectors enabled the country to live on credit in the world on a current account deficit of huge (7.5% of GDP), despite low productivity and industry reduced. If both of these engines stall, it is necessary to renew the economic model of the country.
Invest in and build
The “Brexit” is a decision that makes it more urgent than ever that the regulation of our weaknesses in the long-term, “proclaimed Philip Hammond who has cited low productivity, lack of housing and a” imbalance ‘ of the economy. The government intends to create a Substantive investment in the national productivity (NPIF), which will be up to 23 billion pounds at the disposal of innovation expenditure and infrastructure over the next five years. Philip Hammond has announced that it wants to target the ” high-value investment “.
housing will be a priority of the government with more funds : 2.3 billion pounds to build a total of 100,000 housing units and 1.4 billion pounds to build a 40,000 low-cost housing. Aid to home ownership will be facilitated. On the side of infrastructure, London will be 1.1 billion pounds on the table to renew the networks of local transport.
Lower taxes and retention of social benefits
Another component of the strategy of the government : direct support to enterprises. The corporate income tax rate will be lowered to 17 %, the lowest rate in the G20, while the government is committed to improve the financing of projects exporters by doubling the existing fund. A billion pounds will be made available to “start-ups “” to cease to let them be swallowed up by big business “. And for individuals ? The threshold of non-taxation on the income statement as well as that from which the highest rate is payable. Finally, the “savings” in the social benefits provided for in the previous budget are cancelled and 10 billion pounds over 5 years are attributed to the national health service (NHS). But the conservative government has also announced that it may wish to establish a limit to the growth of social security benefits. The dikes, therefore, are not to be slaughtered, but the government demonstrated a certain pragmatism. It wil l be recalled also that the minimum wage will be raised in April from 25% to 7.5 pounds per hour, or a gain of 500 pounds per year for a full-time employee.
the Two motions
The budget will be balanced around two movements. On one side, the government tries to keep what can be of the old logic : the reduction of the corporate tax seeks to maintain a strong attractiveness for foreign investment. But this logic is not based on a simple logic of “fiscal paradise” which, for a large country such as the United Kingdom assumes an uneven pattern, which causes the State to maintain the pressure on the social system and the infrastructure. This time, and this is the main novelty of the conservative strategy, there is a desire for rebalancing and preparing the future by supporting investment and by supporting the domestic demand. The idea would be to reduce the effect of the Brexit by an aggressive strategy, the time to put in place a new model, more solid, based on a technology industry, and a household demand more sustainable. This is an ambitious goal and it is not sure that London gives entirely the means.
The british Conservatives thus began with this budget a certain aggiornamento ideological. Of course, they did not abandon their confidence in the market and the background of their usual strategy, which aims to attract foreign investors and lower taxes, while containing social spending. But they now support that strategy on the need for a corrective action from the State that should direct investments to key sectors for the future and must ensure a level of future infrastructure of quality to help attract investors on the whole territory.
This positive view of public spending, associated with the preservation of the domestic demand and the defense of minimum social protection, is relatively new, and slice, in any case with the government of Cameron-Osborne. This is the consequence for the time being the most tangible of Brexit, which was only possible because the popular classes of the regions désindustrialisées, the forgotten of the growth on the previous model have swung the vote.