First, the key policy announcement was the introduction of a £23bn National Productivity Investment Fund (NPIF). This amounts to a 1.2% of GDP stimulus spread out over four years, which is broadly in line with our expectations of 1% of GDP over three years – this is hardly the ‘re-setting of fiscal policy’ Hammond had talked about before, but it should give some boost to growth. It's also noteworthy that by setting up this fund, the Chancellor has clearly favoured longer-term infrastructure rather than some of the quick giveaways he could have opted for such as VAT cuts, income tax cuts or stamp duty changes (so not as much help for the ‘JAMs’ as he could have given).

The Chancellor has clearly favoured longer-term infrastructure rather than quick giveaways such as VAT cuts

Second, some of the medium-term numbers look questionable. The Office for Budget Responsibility forecasts growth returning to 2% or stronger after 2018. This seems optimistic, and is partly based on immigration remaining elevated. Growth will also depend greatly on how smooth the Brexit process is in the coming years and whether a favourable deal is struck. Furthermore, there is a big improvement in the deficit in 2019/20, implying severe austerity just before the election yet oddly growth will accelerate from 1.7% to 2.1%. This seems highly unrealistic; we don’t think the government can deliver the austerity without hurting growth.


Third, the Chancellor has introduced some new fiscal rules:

  • Public finances should be returned to balance as early as possible in the next parliament. In the interim cyclically adjusted borrowing should be below 2% by the end of this parliament
  • Public sector net debt (as a % of GDP) must be falling by the end of this parliament
  • Welfare spending must be within a cap set by the government and monitored by the OBR


These are similar to those employed by George Osborne, but give Philip Hammond some flexibility to add more stimulus if the economy deteriorates.

Whether the economy can recover in the medium term back to 2% growth will depend greatly on how smooth the Brexit process is in the coming years and whether a favourable deal is struck

Finally, despite paying tribute to his predecessor, Philip Hammond ditched his suggestion to take corporation tax to 15%, and instead maintained the current pace of reduction to 17% by 2020. More aggressive cuts would probably have been seen by the rest of the EU as a provocation ahead of the negotiations – it is well known how much the Irish tax rate of 10% irritates other EU states.


Now this key milestone is over for the Chancellor (forever*), he can get on with implementing his promises to boost UK productivity – something needed to weather any upcoming headwinds as the Brexit talks start in 2017.


* …is also his last. The Autumn Statement is being abolished. From autumn 2017 there will be an autumn budget, and a spring statement. It is, perhaps, a little ironic that in this regard, the UK is moving to a more European system as it embarks on leaving the EU…