Inside: Designing parliaments, flogging loans, being from Wales. View this email in your browser

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What will Phillip Hammond do next?

The launch of the Institute for Fiscal Studies’ Green Budget is a grand affair, held this year at the Guildhall - the seat of the City of London. In a display case underneath where hundreds of attendees congregated, a note from William the Conqueror affirms the City's privileges to run its own affairs: and his commitment that "I will not suffer that any man to you any wrong offer." IFS Director Paul Johnson reminded us that the reason this 300-page document is produced each year is because - by contrast to every other area of public policy - no green paper is released on fiscal decisions to enable critical discussion. Here’s what we learned out the Chancellor’s fiscal choices ahead of the spring Budget, which will be the last ever.

The UK economy may see off Brexit...for now

2016 saw the UK’s gross domestic product grow by 2 per cent: lower than the forecast 2.2 per cent and the average 2.5 per cent achieved since 1956. This contradicted the Treasury’s predictions that a vote to leave the EU would cause a 0.2 - 1.4 per cent contraction in the second half of 2016. Consumer confidence was largely the reason: it rose by 2.8 per cent, accounting for around four-fifths of the increase in GDP. However, Andrew Goodwin of Oxford Economics, who co-authored this year’s macroeconomic outlook, advised caution over the medium-term outlook. While we are likely to sign a free trade agreement with the EU, and even a transitional agreement, the global trend is likely to be for increased protectionism. Each additional trade barrier will dent growth (See TTR 1 January 2017) - especially those that aren't explicitly tariffs. For that reason, he argued, “we think the government's chosen path for Brexit is actually one of the more economically damaging [ones]".

It’s the financial crisis that’s actually causing headaches

The dependency of UK economic growth on household spending increases its vulnerability to both political shocks like Brexit and the next economic downturn. The key thing here is business investment, as Goodwin emphasised. Certainly, in the second and third quarters of 2016 it rose by 1.2 and 0.4 per cent, but as Bank of England Barry Cunliffe pointed out on Wednesday, it has grown at half the rate of the post-war trend since the crisis. A survey by the BoE found that a third of firms believed they had underinvested over the last five years due to perceived - rather than statistical - concerns about the lack of internal funds, the cost of finance, and access to finance. They also cited “uncertainty about the future economic environment, inertia or discouragement from investment due to lower‑than‑desired rates of return on existing investment.” It's hard to avoid the conclusion that the UK economy loves bad news: in Cunliffe's words, you can make out "a vicious circle in which weak demand leads to lower investment that in turn impairs the productive capacity of the economy. This in turn impairs demand as households and businesses revise down their expectations for future income and profits and so on."

The Chancellor has given himself a £29 billion headroom - but austerity continues

Philip Hammond aims to “return the public finances to balance as soon as possible in the next parliament”, and the IFS’ Thomas Pope translates that as an objective to eliminate 0.7 percent of national income deficit by 2024–25. But he has not in fact set himself any fiscal target to meet in this parliament. The ‘fiscal mandate’ requires that the structural part of the deficit - which isn’t subject to cyclical strength or weakness in the economy - fall below 2 per cent of national income by 2019-2020. That provides a lot of “headroom” for less budgetary tightening in response to Brexit-induced weakness in the economy. However, the ‘supplementary debt target’ requires that public sector net debt falls in the next parliament, and a ‘welfare cap’ is also in place. This means further austerity - and some subtle shifts in where the axe will fall compared to his predecessor's plans. Here is the current plan for tightening the budget.

There’s a £29 billion pound difference to the Osborne plan, where cuts were to come exclusively from departmental spending. Underlying changes - the economy not meeting expectations - have led to two-thirds of the gap in the public finances that will need to be made up even under more moderate austerity plans. But the rest comes from post-election tax rises and welfare cuts.

Quick Reads

How we design parliaments reflects our underlying assumptions about government - ours is assumed to be agonistic, but in fact harks back to the “concentration of absolute power”. Hansard Society

Take back control, pt. 2. “The principle of subsidiarity should be understood as a basis for all good government.” LGiU

What’s everyone else doing? Can governments actually regulate against fake news? LSE Media Policy Project

No reason to stop. Energy efficiency initiatives change people’s behaviour: but in reverse, so they’re only about 70 per cent effective. Green Alliance

Going cheap. Alternative facts, fearful banks, and the selling off of the student loan book. HEPI

Don’t call it ‘bed-blocking’. Hold-ups in social care are the reason for inexorably growing numbers of patients delayed in leaving hospital. But fixing this needs good data, better cooperation, and less bureaucracy. Nuffield Trust

The Brexit White Paper

Another week, another white paper. Here are some angles.

Show me the money. A new approach is welcome, but are voters willing to face lower house prices, and is government willing to fund the necessary infrastructure? New Local Government Network

Ask around. There’s silence where a forum for public engagement should be. Institute for Government

Go easy. Large developers needn’t worry - new incentives for speeding up development are toothless. Civitas

Private views. Leaving public-sector housebuilding out is unlikely to deliver the necessary homes. Civitas

Reports

Rush for the exits. Could the UK end up in Brexit limbo? A comprehensive rehearsal of the options. Constitution Unit

€60 billion. UK financial obligations to the EU are hazily understood, but both sides think they will win a legal battle. Centre for European Research

What you pay for. Most failures in government contracting come down to people - not seeking advice from the right ones or ignoring it when it's given. We also need systems to support ongoing contract and relationship management. Institute for Government

In Wales you ask, ‘where are you from?’. If policy is to successfully target inequality in Wales, it needs to take place seriously, ethnographic research suggests. Young Foundation

Lean times. Should the UK be following New Zealand’s workforce-slashing approach to the public sector to counteract “two decades” of productivity stagnation? Reform

Helping hand vs. invisible hand. Supporting entrepreneurship might actually require intervention, not laissez-faire. RSA

“England has some of the best young scientists anywhere in the world”. But for girls, there’s a three-year gap in attainment depending on your socioeconomic background. Sutton Trust

Think Tanks

New depths. Transparify have released their annual ratings of think tank transparency in the UK. They’ve had to introduce a new bottom category - “deceptive”. Transparify

Congratulations. The King’s Fund turned 120 this year. King’s Fund

Jobs

Policy and Planning Officer. General Medical Council. £33k. Apply by 19 February.

Enquiry Executive. House of Commons. £25k. Apply by 22 February

Policy Team Leader. Department for Environment, Food and Rural Affairs. £45k plus. Apply by 24 February

Head of Communications and Engagement. Cornwall Council (Truro). £56-68k. Apply by 6 March

Policy Officer. Gingerbread. £36k. Apply by 6 March.

And with apologies for the incorrect link:

Policy Development Officer. The Labour Party. £36k. Apply by 19 February

Think Tank Review readers are smart, good-looking, and know all about policy. Email your vacancies to review@thinktankreview.co.uk and we’ll list them for free.

Forward

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Compiled by Tom Jeffery