Anthony Hilton: Hammond’s tactic is to mask the real truths

No one asks the right questions on Budget day.

An intelligent shadow chancellor responding to Philip Hammond’s speech might ask why — if the economy is doing as well as the Chancellor says it is — the millennial generation is the first in 100 years that is earning less than its parents.

He might ask if the Treasury’s forecasts say whether this is likely to change for the better or for the worse, and if so why?

He would then follow up by asking why it is that home ownership in Britain is falling for the first time in 50 years — not among the very rich or the very poor, who are buying or renting much as they always have — but among the vast swathe of people who are in the middle-income bands. It is this group, very much the backbone of the country, which now increasingly finds that home ownership is out of reach. That is surely an odd outcome in a supposedly successful country.

Third, if the Opposition is allowed a third question, he might ask the Chancellor to point out the flaws, if there are any, in an analysis published this month by the Rowntree Foundation. This said that median (or average) income of the population as a whole will not grow for the next two years.

The Chancellor’s claim that the economy grew more than expected last year, and that forecasts for this year have been revised upwards, answers the wrong question. Just because the economy is growing a bit does not mean everyone is better off. If the growth comes simply because more people are employed, it is quite feasible for the economy to get bigger while average living standards fall. That is what is happening, and what the Rowntree Foundation — using projections produced by the Office for Budgetary Responsibility — says will continue to happen. Much of the nation is getting poorer.

For many, the picture is bleak. Real incomes for the bulk of the population have barely grown since the financial crash nine years ago. This means that average income will be 18%, or £5000 per household, lower by 2020-21 than it was expected to be and would have been if life and economic growth had continued to progress as they did in the run-up to the crisis.

The coming pain will fall particularly hard on low-income households because they will also have to cope with the planned cuts and freezing of universal credit and housing benefits. If these are implemented as intended, the Rowntree Foundation paper forecasts that one person in seven will have a lower income in five years’ time than they have today. This does rather cast a shadow over Prime Minister Theresa May’s claim that she will create an economy which works for everyone. In fact, you have to go back generations to find an economy that has worked so badly for everyone. To put the analysis in context, such a sustained squeeze in income growth has not happened in the last 60 years, and arguably not since the Twenties.

So the real story of today’s Budget is not how well the economy is doing when measured by whatever obscure metric the Chancellor has selected to suit his purpose. With the National Health Service struggling to cope and problems looming in social care, it is obvious that the economy is failing to generate sufficient tax revenues to meet the aspirations of its people. So the real question is what, if anything, does the Chancellor propose to do about it?

Hammond is not a stupid man; he knows as well as anyone how vulnerable and sclerotic the British economy has become since Mrs Thatcher’s day by being so reliant on cheap, unskilled labour to produce the goods and on shopaholic consumers maxing out on their credit cards to buy them. As a system, it works — but only as long as people are prepared to run faster and faster just to stand still.

Hence the growth of zero hours contracts on the one hand and surging personal indebtedness on the other. Both are signs that we are reaching the limits of what the current system can deliver. Genuine economic growth in income per head requires the existing workforce to become more productive, so that we increase the value of what we produce in every working hour, and then we can all have a share or it — in increased wages, taxes and profits. But if we don’t have productivity growth — and we don’t — the whole thing is an illusion.

This is because without productivity growth, there is no more money. Any demands for more spending simply mean that Peter will be robbed to pay Paul, or that the Chancellor will borrow more, which means in effect that Peter is your child or grandchild — a member of the future generations who will one day have to repay that debt.