‘TRANSFORMATIONAL TECHNOLOGY, HIGHER PRODUCTIVITY’
The Rt Hon John Redwood MP
Thursday 23rd November: This week’s budget focused on Britain’s future. Here the Rt Hon John Redwood MP* considers the vision, the message and the questions raised by the Chancellor:
The UK economy is forecast to grow in each of the next few years according to the independent Office of Budget responsibility. It will create more jobs, business investment will increase, and tax revenues will pick up. State debt as a proportion of GDP will peak soon, and the deficit will be lower in cash terms each year.
This is a relatively benign outlook, and contrasts with the pessimistic forecasts made immediately after the vote by the official bodies. It may be a little on the pessimistic side. This time the forecasters have taken down their forecast for productivity substantially from previous levels, deciding it will not pick up to the old trend rate that applied before the banking crash. There has been a pronounced slowdown in productivity growth for all the major economies. This probably has something to do with the continuing switch to more service activity with less emphasis on capital intensive manufacturing output. The models are also finding it difficult to adjust to the impact of new technology on economies.
Productivity was the golden thread running through much of the budget. The government is pushing ahead with extra public sector investment in transport and other infrastructure to power growth. It is aiming higher for skills, education and training. It wants to foster more research and development, more small business formation and investment, more technology driven activities.
It also wants to build new garden towns, and make a major commitment to a new development arc stretching from Cambridge through Milton Keynes to Oxford. It is planning to boost both public and private housebuilding, and to seek more spin off from the universities in the form of knowledge based industry.
The central package in the budget is there to boost housebuilding. The government recognises that house prices in many parts of the country are dear. Too many young people are unable to afford the deposits to buy their first home. The Chancellor has decided to remove Stamp Duty from first time buyer purchases of up to £300,000 and to allow someone to pay up to £500,000 with the benefit of no Stamp Duty on the first £300,000. There are already help to Buy schemes to assist with deposits, and savings schemes with taxpayer contributions to accelerate the accumulation of a deposit.
The Budget has commissioned more work on why some developers do not build quickly once planning permissions have been granted, and it has allocated more money to promote housing in the years ahead. There will be money available to open up new areas for development, money for transport links, and money to help with affordable housing. This will include homes to rent as well as homes to buy. Surveys show a large number of people would like to be able to buy their own home but are prevented or deterred by the prices.
Getting more homes built will be a process of moving forward on many fronts. The restrictions can be anything from planning to finance, from the availability of builders and materials to arguments over the style and composition of developments. The government will continue to worry away at how it can improve in many of these areas.
This vision makes sense. The good news is the UK is an attractive place for inward investment, with many coming here to set up businesses, expand businesses, acquire commercial property and hire a good workforce. The technology giants from the USA have been keen to expand here. Successful UK technology companies are much in demand from foreign buyers if there is any suggestion they might be for sale.
The UK does need to work away at raising productivity. The arrival of artificial intelligence, more robots, better computer programmes and faster mobile communications present a great opportunity to invest in the new wave of technology. This technology is capable of transforming the way we live and work. It is relatively cheap and easy to get started with a small business on the internet, allowing more challenge to existing businesses and older models of offering goods and service. Retail, for example, is being changed rapidly by the ability to comparison shop on the web and receive an order through the post by the next day.
The economy has been very flexible, capable of generating a lot of new jobs and businesses in recent years. Wage growth has been slow, with the government keen to boost wages at the lower end of the pay scales, both by introducing a Living Wage and by taking more people out of paying Income Tax. The introduction of Universal Credit is designed to help promote more employment and to ensure it is always worthwhile working. The Budget has rightly made this benefit easier for people first applying for it, by shortening the time it takes to get it and being more generous about interim arrangements.
*The Rt Hon John Redwood is the Member of Parliament for Wokingham. He is the author of Politeia’s Brexit Benefits: Prosperity not Austerity – Britain’s New Economy (2016).