1st December 2016
Today marks the day of the UK Parliaments last ever Autumn statement. The announcement by Phillip Hammond, Chancellor of the Exchequer, that autumn statements will be abolished was the final announcement of his speech in Parliament today. With the exception of a few “Westminster geeks”, however, this was not the most shocking or interesting announcement in Parliament today.
The UK’s biggest weakness
Productivity is one the biggest issue Britain’s economy is facing and a stain on our national statistics. Productivity in the UK is 8% less than Italy’s, 20% less than Germany and 30% less than France. The reason for these figures is that we work harder and produce less.
“Productivity = Average output per period / The total costs incurred or resources”
Productivity worldwide has been stifled since the financial crisis. For the UK to have such low productivity compared to other European countries means that the fraction to the right of the equal sign is bottom heavy compared to other countries. Phrased differently, the UK economy is less cost efficient than other economies, even some of the weaker ones. Mr. Hammond used these facts as a platform to voice how the UK does not invest enough in innovation, research and development.
National Productivity Investment Fund
The National Productivity Investment Fund (NPIF) aims to provide £23 billion in spending between 2017–18 and 2021–22. Though in today’s Autumn statement the details of how funds will be allocated for the period 2021–2022 were not included, £7 billion have been committed to that year, the allocation of the remaining £16 billion to be spent between 2017 and 2021 have been announced.
Portions of NPIF spending during its first 4 years
Investments include the biggest affordable house building programme since the 1970’s, resurfacing 80% of the strategic road network, the largest investment in railways since Victorian times, and prioritizing science and innovation spending. Research and development are the second highest investment but the Autumn statement does not go into great detail as to where and how this R&D will be conducted. Given the nature of many of the other investments as part of the NPIF, it is most likely that the spending on R&D will go into technology that will help facilitate the other areas of the Investment fund, such as next-gen vehicles and smart-sensor enhanced railways. Other synergies in the fund include £740 mil investment in 5G and fibre optic broadband.
Breakdown of NPIF Transport spending during first 4 years
Further announcements on a £2 billion pounds investment into new technology to boost productivity will be announced on Monday. These changes will be combined with policy changes aimed at making it feasible for SME’s to be sustainable without having to be bought out by larger companies, making multinationals pay more tax on years that were more profitable and less tax on years where profits were lower and making lending by multinationals in the UK conditional. The ultimate goal is to make the UK more productive and attractive for businesses both large and small.
Mr. Hammond also used the phrase “JAM’s” to classify a segment of the population which is “Just about managing”. JAM’s are people who are unable to save up because they are spending everything they earn or are out of employment and living on savings. Changes to policy like a cancellation in fuel duty rise for the seventh year in a row, free childcare hours will be doubled and the availability of a new market leading savings bond are all aimed at improving the outlook for people living and working in Britain.
The fund will elevate the total spending on housing, economic infrastructure and R&D to £170 billion over the next 5 years. The full Autumn Statement is available at gov.uk
Link to the original article on Medium