Following this week’s budget the general secretary’s of Britain’s leading trade unions issued a co-ordinated response admonishing the absence of any intention to scrap the seven year strong public sector pay cap. Unite, the TUC, the GMB, Unison and PCS all denounced the chancellor, Philip Hammond, with PCS’s Mark Serwotka saying:
PCS will now, as a matter of urgency, step up our campaign on pay, in alliance with other public sector unions, to force the chancellor – or anyone who replaces him – to rectify this deeply damaging policy.
Unions want the 1% pay cap scrapped and pay to be increased above the rate of inflation (currently 3%). Some, including PCS, are seeking up to a 5% rise. In his delivery the chancellor hinted that pay for NHS staff could go up on the proviso that productivity in the economy improved. Pay review bodies will make recommendations on wage increases for public sector workers next year.
As for how any rise in pay would be funded, the treasury confirmed to BBC journalist Iain Watson that apart from the NHS, any increases ‘will have to be met from dept budgets‘ – meaning money being redistributed from the services in question to the workers themselves. Such a scenario would undoubtedly put public services under further pressure. The prospect of industrial action in 2018 is now a distinct possibility. I discussed this subject in depth in an article published two months ago – (The Austerity Capitulation Begins as the Bank of England Creep Towards ‘Policy Normalisation’).
Outside of public sector pay, reaction to the budget has centered on the amount of borrowing required to fund the government’s spending. The Daily Mail declared austerity to be over due to a ‘£25bn budget splurge‘ over the next five years, whereas the Guardian reported that according to the OBR the chancellor will need to borrow £90 billion up until 2022 to compensate for lower wage growth and tax receipts. The OBR, a traditionally unreliable institution, has forecast GDP growth of 5.7% up to 2022, down from an original estimate of 7.5%.
Official documents detailing the budget confirm that estimated expenditure for 2018/19 stands at £809 billion. Revenue is projected to reach £769 billion, a £40 billion shortfall that will be backstopped by borrowing. The government is undertaking what was telegraphed many months ago – higher borrowing amidst the Bank of England beginning their variant of what is an international agenda to ‘normalise‘ monetary policy through higher interest rates.
The commonality running throughout both these eventualities remains the process of Brexit. Withdrawal from the European Union will continue to be used as a scapegoat for what is an ailing economy saddled with record levels of debt. Debt that will become increasingly more expensive to service as rates rise.
- Philip Hammond effectively ended austerity today with a £25billion Budget splurge that abolished stamp duty for most first time buyers and pumped £3billion into preparing for Brexit.
- Despite the OBR fiscal watchdog wiping billions of pounds off the government’s books by slashing growth forecasts, Mr Hammond ploughed £2.8billion more into the NHS, £1.5billion into heading off anger about the new Universal Credit rollout, and paved the way for significant public sector pay rises.
- Philip Hammond must borrow an extra £90bn over the next five years after the Treasury’s independent forecaster downgraded productivity growth.
- The Office for Budget Responsibility (OBR) warned that the chancellor faced a long period of lower than expected wages growth that would dent tax receipts and push up borrowing. The cumulative effect over the life of the parliament would add £90.5bn to the UK’s debt pile and jeopardise Hammond’s target of balancing the government’s books by 2025, it said.
- The Treasury’s official forecaster has delivered its weakest GDP forecasts for the UK since it was established in 2010 on the back of a collapse in productivity growth.
- According to the Chancellor, Philip Hammond, the Office for Budget Responsibility expects GDP growth to slow to 1.5 per cent this year, before dipping to just 1.3 per cent in 2019, when the UK is due to leave the European Union,
- In March, the OBR expected the economy to grow by 7.5 per cent in the five years to 2021-22. Now it expects just 5.7 per cent growth over that period.
CNBC: Fed officials fear financial market ‘imbalances’ and possibility of ‘sharp reversal’ in prices
- Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy.
- Some members feared what would happen if the market suddenly took a hit.
- “In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances,” the minutes said. “They worried that a sharp reversal in asset prices could have damaging effects on the economy.”
- German President Frank-Walter Steinmeier says Germany is facing a situation unseen in decades after coalition talks failed. He warned of “great concern” across Europe if the “strongest country” in the EU can’t form a government.
- “We are facing a situation which [we] did not face in the Federal Republic of Germany for almost 70 years,” Steinmeier said.
- German Chancellor Angela Merkel said she’d rather face new elections than govern without a majority, betting that voters won’t blame her after four-party talks on forming a coalition collapsed.
- “A minority government isn’t part of my plans,” Merkel said Monday in comments to broadcaster ARD. “I’m certain that new elections are the better way.”
- Bank of England officials said they see no need to change how they communicate the outlook for interest rates after the central bank started tightening monetary policy this month.
- Michael Saunders, Jon Cunliffe, Ian McCafferty and Gertjan Vlieghe backed the strategy of forward guidance on the likely direction and speed of monetary policy changes, dependent on the economy evolving as the BOE expects. The four men, part of the nine-member Monetary Policy Committee, told Parliament on Tuesday that it would be unwise to be too definite on borrowing costs.
- “It’s tempting to think the bank could promise where rates will be in future, but this would create more uncertainty,” Saunders told lawmakers in London. “Monetary policy responds to what the economy does. It’s not possible to forecast the economy with perfect certainty.”
- London is losing the European Medicines Agency to Amsterdam and the European Banking Authority to Paris, in one of the first concrete signs of Brexit as the UK prepares to leave the European Union.
- The British government was powerless to stop the relocation of these two prized regulatory bodies, secured by previous Conservative prime ministers. The Department for Exiting the European Union had claimed the future of the agencies would be subject to the Brexit negotiations, a claim that caused disbelief in Brussels.