OBR: House prices to fall
Heads-up. The Office for Budget Responsibility has predicted that UK house prices will be falling by the end of this year.
The OBR has downgraded its forecasts for the housing market, due to signs that house price growth has flowed, and subdued turnover in the housing market.
It now thinks house price inflation will turn negative, before bouncing back in 2021.
This is going to make a serious hole in the government’s tax receipts, as stamp duty has been a lucrative tax in recent years.
Greg Hands, Conservative MP for Chelsea, is worried:
Back in parliament, Chuka Umunna MP has pointed out that Britain’s economy had been expected to grow at over 2% per year, before the 2016 referendum.
Today’s growth forecasts – just 1.2% this year, picking up to 1.6% in 2021 – are sluggish and unimpressive, Umunna points out.
Philip Hammond tells MPs (well, those who have hung around in the chamber) that the OBR’s recent downgrade of likely UK productivity growth is to blame.
Hammond is being criticised for not ending the freeze on benefits (which means the will continue to shrink in real terms).
Heidi Allen MP, who quit the Conservatives to join The Independent Group, says it makes a mockery of ‘compassionate’ Conservatism.
Alison Garnham, chief executive of Child Poverty Action Group, says the government is failing the poorest.
“Struggling families are desperate for an end to the freeze on working age benefits, but this Spring Statement leaves them out in the cold once again. Already the freeze has saved the Treasury more than was ever intended, so there can be no ongoing justification for these ‘stealth cuts’ that mean that the poorest in society have borne the heaviest burden from paying off the deficit.
“Today, the Chancellor could have sent a lifeline to low-income families. That he didn’t is evidence of Ministers’ refusal to confront the reality that families have been left with too little money to live on after three long years of stagnant incomes and rising prices. Funding sanitary products for girls in schools may help with one small area of expenditure, but this will have a minimal impact on poverty overall. It leaves in tatters the prime minister’s claim that austerity is over.
Hammond’s call for MPs to build a ‘consensus’ to prevent a no-deal Brexit has caused a stir at Westminster.
Is he suggesting giving up on Theresa May’s deal, in favour of a new plan that could be backed by Labour?
Labour’s shadow Chancellor, John McDonnell, responded to the spring statement by blasting the government’s record:
The Chancellor has the nerve to tell those who have suffered most at the hands of his Government, that their suffering was necessary.
If austerity wasn’t ideological, why has money been found for tax cuts for big corporations while vital public services have been starved of funding?
Austerity was never a necessity, it was always a political choice.
So when the Chancellor stands there and says that the end of austerity is in sight, talks of a plan for a brighter future – how can anyone who has lived through the last nine years believe him?
This is a Government that has demonstrated a chilling ability to completely disregard the suffering they have caused.
To talk of changing direction after nine years in office is not only impossible to believe, it’s also much too late.
Too late for the thousands who have died while waiting for a decision on their Personal Independence Payments. Too late for families who have lost their home due to cuts in housing benefit. Too late for young people losing their lives to knife crime after youth clubs have shut down and police numbers fallen, whatever he has been forced into announcing today.
He also urged Hammond to help remove the threat of no deal:
Of course Brexit looms large over everything we discuss.
Even today, the Chancellor has tried to use the bribe of a deal double dividend or threat of postponing the spending review to cajole MPs into voting for the government’s deal.
Publication of the tariffs this morning is clearly part of this strategy.
This is a calamitous strategy. It is forcing people into intransigent corners.
What we need now is the Chancellor today to commit to vote to take no deal off the table.
Then to join me in discussing the options available, including Labour’s deal proposal and yes, if it requires it, taking any deal back to the public.
Yael Selfin, chief economist at KPMG, has bad news for the government — it doesn’t currently have enough firepower to handle a no-deal Brexit.
So it would have to tear up its borrowing and spending plans, if Britain crashes out without a deal.
OBR: Hammond has £26.6bn Brexit war chest
The Office for Budget Responsibility’s verdict is out.
The independent watchdog’s top line is that growth has slowed, but the public finances look marginally healthier.
Economic growth in the UK and globally has slowed since the Budget in October, leading us to revise down our near-term GDP forecast. But tax receipts have performed better than we expected in the final months of 2018-19 and we judge that much of this buoyancy will endure.
Together with downward pressure on debt interest spending from lower market interest rates, this delivers a modest medium-term improvement in the public finances. The Chancellor has banked most of it in lower borrowing, but has spent some on higher planned public services spending.
The OBR has also confirmed that the chancellor’s now has over £26bn of extra spending power he could unleash, once a no-deal Brexit is off the table.
This is up from £15.4 billion in October, as the fiscal costs of the temporary nearterm cyclical weakness of the economy have been swamped by the fiscal gains from higher income tax and lower debt interest spending.
But… the government still isn’t on track to balance the budget by 2025-26 – a whole decade later than George Osborne’s first target.
Some reaction from Hammond’s side of the House:
But opposition MPs are predictably less impressed:
Snap summary: Hammond promises more spending, if No-Deal Brexit avoided
As we suspected, there wasn’t much new in that statement.
The economic picture for 2019 has darkened, with growth forecast to only be 1.2%, from 1.6% before. Brexit uncertainty, and the slowdown in the global economy, are both probably to blame.
Hammond pointed to faster projected growth in 2021 and 2022 — but he’d surely agree that we can’t bank on that until MPs have got their act together on Brexit.
Also, growth is still seen below 2% per year for the next five years; a poor performance by historical standards.
The chancellor’s main message that he could unlock more spending, if MPs backed a deal.
Those improved borrowing figures mean he’s got more than £26bn to play with, and a Spending Review planned for this year.
With a pointed nod to those who marched through the No lobby last night, he said:
“Leaving with no deal would mean significant disruption in the short and medium term and a smaller, less prosperous economy in the long term, than if we leave with a deal.
Higher unemployment, lower wages, higher prices in the shops. That is not what the British people voted for in June 2016.”
Tonight’s votes will show exactly how many MPs agree with Hammond (Andy Sparrow will be tracking that in Politics Live here).
There was welcome news — money for free sanitary products in secondary schools and colleges, the extra cash for knife crime protection, and a focus on climate change prevention.
Hammond: Brexit uncertainty must stop
Hammond ends his speech by warning MPs that while the economy is fundamentally robust, it is still overshadowed by Brexit uncertainty.
He tells the House:
We cannot allow that to continue. It is continuing our economy, and damaging our standing in the world.
Tonight we have a choice, he continues. MPs can remove the threat of an imminent no-deal threat.
Tomorrow we can map out a way to build a consensus across the house, to exit the EU in an orderly way, and create a relationship that allows Britain to flourish, he continues.
Another rumour is confirmed, as Hammond announces £100m of extra funding to tackle knife crime.
The money will go to violence reduction units, and for more police overtime. That follows heavy lobbying from the Home Secretary Sajid Javid.
Hammond has confirmed that he is taking action on period poverty.
The Treasury will fund the provision of free sanitary products in schools from the next school year [as we reported last weekend].
On the environment, Philip Hammond says fresh standards will be introduced for new housing, to mandate the end of fossil fuel heating by 2025.
He also announces a new review into the link between biodiversity and growth.
Plus, the government will designate a further 445,000 square kilometres of ocean around Ascension Island as a Marine protected area.