Was this a Brexit budget in disguise?

30 November 2017

An examination of the Chancellor’s Budget 2017 by Trevor Williams, the former Chief Economist at Lloyds Banks.

A little like the weather at this time of the year, the economic outlook in the first Autumn Budget was a bit gloomy. Because of assumptions about lower productivity – in 16 of the last fiscal events it has been forecast to return to its long-term rate of growth of 2% but has stubbornly refused to do so – economic growth was lowered in every one of the next five years.

The official assumption is that, due to Brexit, net migration will fall by 20,000 a year, which will take 0.2% off growth by the end of the five-year period. Although these forecasts are often wrong, it remains that growth isn’t expected to return to 2% for some time. This is a more pessimistic view than that held by the Bank of England or independent forecasters.

Gloomy economic outlook

Table 1. Growth and inflation

% increase in year








Economic growth








Consumer price inflation








One ray of light is that inflation is expected to fall back to the 2% target by the end of next year and stay there. This means that interest rates may not rise much from current levels, supporting the economy and the housing sector in particular. But the predicted size of the UK economy from the cumulative 2.1% reduction in growth over the next five years comes to over £65bn.

Fiscal stance easier but not by much

The Chancellor loosened the fiscal stance, easing austerity, though not by as much as the headlines suggest. For example, the fiscal deficit is expected to persist until 2022/23, pushing up debt. But the ratio of public sector debt is forecast to fall from a peak of 86.6% of GDP in fiscal year 2018/19 to 79.1% by 2022/23.

With economic growth averaging only 1.4% over the forecast period, this can only be achieved if growth in public spending as a whole is kept below the rate of growth of the economy, leading to a fall in the ratio of public debt to GDP. But the overall level of debt will still rise.

The Chancellor listed many of the ills facing the UK – the productivity gap, the implied cut in living standards and the lack of funds to meet spending challenges, and the housing crisis. Then there were the things left unmentioned: the unannounced, but continued, freeze on welfare benefits, the social care question and the squeeze on department spending.

How significant will the new spending announcements be given the size of the UK economy? One way to answer that question is to assess the net impact of the measures on the fiscal position. Table 2 shows that the effect is 0.5% of GDP or £9bn at its peak in financial year 2019/20, and that the impact fades to virtually zero in four year’s time.

Table 2: Total policy decisions in Budget 2017













% of GDP






Impact on the housing market mildly positive

Many of the measures introduced – such as the abolition of stamp duty for first time buyers, changes to the planning system to encourage better use of land in cities and towns, and an additional £15.3bn for house building over the next five years – will directly impact the housing sector.

But will these measures be enough to boost housing completions to 300,000 a year? The answer is that we don’t know for sure, but it looks doubtful without an accompanying surge in housing association and local authority building and more radical measures than were announced. Affordable  house building has fallen from 61,000 in 2010 to just 41,500 last year. But in an encouraging sign, the Chancellor eased restrictions on local authorities’ ability to borrow to build.

More needs to be done?

Summing up, it was a Budget that recognized the issues in housing, but didn’t go far enough to transform them into opportunities. Was this due to a lack of will or did the economic and political challenge of Brexit prove too much? My answer is none of the above: nothing radical was possible owing to the pulverising reduction in productivity growth by the Office for Budget Responsibility.


Trevor Williams will lead a session at Housing Finance Conference and Exhibition 2018, moving beyond the headlines to uncover what the current situation means for you and your organisation’s ability to deliver new homes. Find out more.

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